How To Finance A Owner Occupied Second Home Purchase

This Article Is About How To Finance A Owner Occupied Second Home Purchase

Homeowners upgrading to a new home home can be facing challenges trying to sell their new home and buying a new home simultaneously. Lenders will often will need to qualify both current mortgage payments and the new proposed mortgage payments when calculating the borrowers debt to income ratios. There are issues too when home buyers move from a similar property to another similar property. Many homeowners decide to do a second home purchase. Once they close and move in to their second home, they decide to sell their current home. However, the most advantageous way to purchase the second home is to apply for a mortgage loan as an owner-occupied home. This is done to take advantage of the low down payment and lower interest rate than a second home, vacation home, or investment home mortgage loan.

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Second Home Purchase Needs To Make Sense To Be Considered Owner Occupied

For example, here is a case scenario:

a current homeowner moving from a current 2,000 square ft. home to another 2,000 square ft. home that is only ten miles away
the mortgage underwriter might question why they would be moving to a similar like home so close to a current primary residence

They might consider the second home as an investment home where a minimum down payment of 20% is required. However, if they are moving from a 2,000 square ft. home to a 4,000 square ft. home, the move makes sense. A mortgage underwriter might not question the second home purchase since they are upgrading.

Classifying It As A Second Home

Some homeowners decide to move to a similar and like home and do not mind the mortgage underwriter considering it as a second home. With second home financing, a minimum of a 10% down payment is required. However, the deal has to make sense. How far is your second home from your current residence? If it is less than 100 miles away, the mortgage underwriter might question it and classifying it as a second home purchase will not fly. The mortgage underwriter might classify it as an investment home. 20% down payment is required on investment homes. If the second home is waterfront or in a resort area and is less than 100 miles away from the primary residence, the second home purchase can definitely be classified as a second home or vacation home. 10% down payment will be allowed.