Home Buying in Los Angeles>Question Details

Rachel Long, Home Buyer in Los Angeles, CA

I own a home and am thinking about purchasing a second home. I don't know if it will be a rental or a weekend home.

Asked by Rachel Long, Los Angeles, CA Wed Feb 17, 2010

I know lenders are requiring 20% down payments for second homes but have also read that different lenders have different requirements. I was also told I could put a lower down payment toward the purchase if I was buying it for a relative. I am fully capable of making two mortgage payments but would like to put less down initially. Can anyone offer advice on this topic or possible lender information?

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Hi Rachel,

In a slightly different vein... vacation rentals can be a lot of expense and hassle. Also, the market for them is pretty low right now with hotel rates dropping so low. If you can afford two mortgages you may be better off renting a nice room occasionally when you want to get away (or rent someone elses vacation home,) and put your money into a pure real estate investment which is focused purely on the bottom line.

Please feel free to contact me if you'd like to discuss strong investment real estate opportunities here in L.A. and Best of Luck.
0 votes Thank Flag Link Fri Feb 19, 2010
This is a little outside the box but one option for a low down payment on a second home would be those that qualify for HomePath financing. They offer as little as 3% down even to investors but your search is limited to homes in the Fannie Mae inventory. At their site you can search any area of the country for available homes.

If they had a home you were interested in it might help you get in with less down. You will still need to decide if it is going to be a rental or vacation home for tax purposes as mentioned by others.

Good luck!
0 votes Thank Flag Link Wed Feb 17, 2010
Hi Rachel:
I just sat down and had a chat with my lender on your behalf. I read him your question, and here is the up-to-the-minute information.
If the loan amount (not purchase price) is less than $417,000, you can purchase with 20% down, but no less than that. The rates and terms will be similar to those of a single family owner occupied: very low 5.x%, and perhaps 1 point. If you put a relative in the property, (buy it "for" the relative) the lender will still perceive it as an investment, and not as a second home. The only difference to you is that, as a non owner occupied non second home, the points will jump up to 1.75, but the interest rate will be largely unaffected.
Suppose your loan amount is over $417,000? You will immediately need 35% down, regardless of who "occupies" the property. Jumbo conforming is $729750.
Want more information? I'd love to be you go-to girl. Hope this helps.
Best of luck,
Deborah Bremner
REALTOR, 00588885
Certified Short Sale Professional
Certified Home Retention Specialist
(D) 818.564.6591
Blogging at: http://TheBremnerGroup.com/blog
0 votes Thank Flag Link Wed Feb 17, 2010
Hello Rachel,

I think it's best to ask a lender. If you have equity you might be in a good postion to purchase another home. I tried to do the same and was told as long as I qualified with income requirements it was doable. Now, the other option might be if you are going to declare it our principle residence and rent out your current home. If it's an income property a lender might factor the income but unless it's for a relative or owner/occupy I don't think you could put less than 20% down.
If you want referrals to a few lenders that could run some scenarios just let me know.

Monique Carrabba
The Carrabba Group
Keller Williams Hollywood Hills
(323) 899-2900
0 votes Thank Flag Link Wed Feb 17, 2010
2nd home rates are the same as owner occupied rates so this is preferable as long as the property qualifies as a 2nd home. It has to make sense. Perhaps it's in a resort community. Perhaps it's close to your elderly parents house or where your kids are in school. It can't be next door or a mile away from your current house. This scenario would not qualify as a 2nd home. IF it's a non-owner property or investment the rate will be .5% higher or 1.75% higher as a rule of thumb. However, if it's truly a rental property you should accept the higher rate and not try to deceive the lender. You can't get a non-owner for less than 20% down. A 2nd home would qualify for a lower down payment with mortgage insurance. Buying for a relative doesn't change anything. The person on the loan and who qualifies for the payment is the only person the lender will review.
Web Reference: http://www.targetrate.com
0 votes Thank Flag Link Wed Feb 17, 2010
There are far greater implications besides just the initial down payment requirements that come into play when comparing vacation homes to rental homes- I think it would be wise to decide which way you will utilize the property before entering into discussions with lenders. For example if you set the home up as a rental (investment) property, you may be able to defer taxes through a 1031 exchange when you sell the property and can depreciate the property annually to help lower your tax burden. Unfortunately you can't (at least as far as the IRS is concerned) set up a home as a vacation home AND an investment property, so my point is that you should decide exactly what you are going to do with the home going in and then be completely forthright with your lender, accountant, realtor, etc. about it.
0 votes Thank Flag Link Wed Feb 17, 2010
Hi Rachel,

The last time I checked with a lender the required down payment for a second home was 10% however lending requirements seem to change almost daily now. I'd imagine it may be somewhere near this percentage should your credit and documentation match their requirements. If you would like the number for a great lender I would be happy to pass along.

Best Regards,

Grant Linscott
Keller Williams Realty
323.333.6222 cell
0 votes Thank Flag Link Wed Feb 17, 2010
Hi Rachel,

If you have equity in your current home, you my be able to refinance that property or put a 2nd mortgage on to reduce the cash for the new place!

Also, seller financing of a 2nd deed of trust might be available (under 1st lender guides).

There are also some programs from lenders with 10% down, but the rates are higher and there is the additional Private Mortgage Insurance.

If you have a Financial Planner, that is the best person to start with and then go to a mortgage broker (like me) to discuss loan options.

Also, do not commit loan fraud! If you or a relative is not going to live there, don't say that you are in order to get a lower downpayment.
Web Reference: http://fredglick.com
0 votes Thank Flag Link Wed Feb 17, 2010
A vacation home would normally only require a 10% down payment but a rental home is normally a 20-25% down payment. If you are going to co-sign for a family memeber, FHA is also a possibility at a 3.5% down payment. When speaking with your loan officer, be sure to give them all honest information. This not only protects them but protects you from possible problems in the future.
0 votes Thank Flag Link Wed Feb 17, 2010
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