Shopping loans for second homes
A second home can be anything from a rental unit to a vacation property. Not all lenders offer financing for second homes, and the type of loans available can differ based on the property’s use. Rates, fees, eligibility requirements and customer service are just a few of the factors you should consider when comparing lenders.
Key features of loans for second homes
Financing a second home can be a little more complicated than financing a primary residence. Your finances, as well as the loan type and how you plan to use the property, can impact your options.
Property use: How you plan to use the property can also affect your eligibility. Some lenders may ask for a larger down payment on rental properties, compared to vacation homes, for example. Plus, you may need to prove how you’re going to use the property before qualifying for the loan.
Loan type: The type of loan available to you may be governed by the type of property you are buying. For example, a condo may not be eligible for a non-agency loan, such as a jumbo loan, if it’s a rental property.
How to find the best lender for second home loans
1. Choose the right loan type
Before you start filling out preapproval applications, make sure you’re going after the right type of loan for your situation. Here are four common ways to finance a second property.
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Jumbo loan: If your second property is pricey, you may want to consider a jumbo loan. Just be mindful of the higher down payment requirements that can come with this loan type.
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Conventional loan: These loans are guaranteed by government sponsored enterprises (GSEs) — more commonly known as Fannie and Freddie — so they’re considered less risky for both lenders and borrowers.
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Home equity loan: Using a home equity loan as a down payment on a second home may be easier than coming up with the cash yourself, but you’ll essentially be taking out three loans on two properties. Make sure you take into account any upfront fees and repayment requirements before taking this route.
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Cashout refinance: Refinancing your primary home’s mortgage and pulling out cash for a down payment on a second property can make sense if you’re able to secure a lower interest rate — the savings from the lower rate can help offset some of the increased loan amount.
Search for lenders online and IRL
Online search tools and lender websites can help you narrow down your search quickly — just be wary of vague marketing language (and always read the small print).
Asking friends and family about their real-life experiences and looking at customer reviews can help round out your findings.
Don’t skip over local lenders
Compare these key features
Hone in on at least three lenders that offer the loan type you’re after, and compare these important features.
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Eligibility requirements: Do you meet credit score, debt-to-income ratio and down payment requirements?
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Interest rates: Which lender has the lowest rates, and are they fixed or adjustable? Fixed rates stay the same throughout the length of the loan while adjustable rates fluctuate with the market.
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Fees: Does the lender charge origination fees or other fees associated with the loan type? If so, do the benefits of the loan outweigh the costs?
While fees and rates should be the top priority, there are other important factors to consider when shopping for a second home loan.
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Online accessibility: Are you someone who enjoys doing most of your admin online? If so, you’ll likely want a lender with a comprehensive mobile app and chat support. If you favor in-person support, choose a lender with branches nearby.
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Lender size: Working with a large national bank can offer consistency and familiarity. Alternatively, a smaller, local institution may offer a more personalized service that better fits your needs.
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Lender expertise: How much of a lender’s business is dedicated to a particular loan type can give you an idea of how experienced or competent they are with that product.
