Second Home Purchase – How To Get a Second Mortgage?

Current mortgage rates are near a historic low point and property values are as depressed as they have been in recent memory. Home owners who are considering refinancing their home or purchasing a second home would be wise to take advantage of this opportunity.

Recently I spoke to Bob Tedeschi of The New York Times on the topic of vacation homes.  Obtaining a mortgage for a second home has become more difficult due to tighter lending guidelines, stricter requirements, and regulations. Pristine credit and a large down payment are generally required for a second mortgage. It is hard to qualify for a second mortgage but it is considerably more affordable than it was in the past.

Here are some things to consider when purchasing a second home:

• Second homes must be located a reasonable distance from the borrower’s primary residence.
• Second homes must be occupied by the borrower for a portion of the year.
• Second homes are limited to one-unit homes.
• Second homes must include utilities suitable for year-round occupancy.
• The borrower must have sole control of the second home.
• Occupancy of second homes cannot be controlled by a management agency.
• Second homes may not be rental properties or timeshares.

As recently as three years ago borrowers with a credit score as low as 560, and as little as 5% for a down payment were able to obtain subprime mortgages for second homes. These subprime loans were one of the primary catalysts for the current economic crisis and we are unlikely to see these kinds of loans again.

Today a 20% down payment for a second home is de rigueur. A few mortgage companies will accept a 10% down payment but only if the property is in Arizona, California, Florida, Michigan, or Nevada. Additionally, the borrowers must have a credit score of at least 720, a debt to income ratio at or below 41%, and have at least two months of principal, interest, taxes, and insurance (PITI) in liquid reserves.

While the housing market shows some signs of stabilization, many prominent analysts are predicting hikes in mortgage rates when the Federal Reserve begins to withdraw stimulus money from the economy later in the year. If you are on the fence about purchasing or refinancing a second home, you may want to do so before conditions become less favorable.

To speak with a certified mortgage professional at Total Mortgage Services about any of your mortgage needs, please call us at 877-868-2503.