Lenders view second-home mortgages as higher risk than primary residences — you're less likely to prioritize payments on a vacation home if finances get tight. This means different requirements and higher rates. Here's what to expect.
Second-Home vs. Investment Property Classification
This distinction matters enormously. A second home must be a property you intend to occupy for some part of the year and cannot be a full-time rental. Misrepresenting an investment property as a second home to get better rates is mortgage fraud.
Lender Requirements for Second Homes
- Minimum down payment: 10% (20% is common for the best rates)
- Credit score: 680+ recommended, 720+ for best rates
- DTI ratio: Under 45% including both mortgage payments
- Reserves: 6–12 months of payments on both properties
- Property type: Must be suitable for year-round occupancy, located far enough from primary residence to be a true vacation property
- Rate premium: Typically 0.5%–0.75% above comparable primary residence rates
Financing Options
- Conventional second-home mortgage: Standard route, follows Fannie/Freddie guidelines.
- Cash-out refinance on primary: Use equity in your primary home to fund the second home purchase outright or as a larger down payment.
- HELOC on primary: A home equity line of credit gives you flexible access to equity — draw down only what you need.
- Portfolio loan: If the property doesn't meet conventional guidelines (e.g., condo hotel), some banks offer 'portfolio' loans kept in-house.
Rental Income Won't Count
Unlike investment property loans, lenders won't count expected rental income toward qualifying for a second-home loan. You need to qualify based on your existing income alone.