Second home mortgage requirements are a bit stricter than first home loans, and a bit stricter than in years past with some new guidelines coming into effect this year. 

Fannie Mae and Freddie Mac — the two agencies that set conforming loan guidelines, and that back the majority of loans issued in our country — set requirements for both the borrower and the home being purchased.  

In April of this year, Fannie and Freddie tightened the underwriting criteria for second homes and investment properties by imposing a 7% limit on their acquisition of mortgage loans secured by second homes/investment properties (prior to this year, there was no limit). 

Buyers looking to purchase a second home need to realize that you need at least a 10% down payment—this rule is non-negotiable. Beyond this down payment rule, there are some other guidelines for second home mortgages. Borrowers may be approved with a credit score of 680 or higher is the typical minimum, a credit score of 640-679 usually requires a down payment of 25% or more, and a debt-to-income ratio up to 45% maximum. 

Some additional rules that apply is that the buyers must occupy the home at least part of the time. You aren’t allowed to finance a property using a second home mortgage and rent it out full time—this would require an investment loan, and these loans typically come with higher interest rates and larger down payments. 

Additional rules about the property itself are:

·      Must be a one-unit home (not a multi-unit buiding)

·      Suitable for year-round use

·      Belong solely to the buyer

·      Suitable for year-round use

·      Not rented full-time, not a timeshare, and not operated by a management company that has control over occupancy

·      Must be a reasonable distance away from the buyer’s primary residence

Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.