5% Down-Payment on a 2nd Home or Vacation Home
Hi everybody, Craig Bosse, and today we’re going to be talking about second home low down-payment options. We can do these with only 5% down, up to two million dollars and 10%, up to three million dollars. Let’s get into some of the basics. The 5% down-payment option is the minimum. That one requires a 740+ FICO score, so it’s pretty high FICO requirement. Can’t do any gifts on that one. Can do that up to two million dollar on the loan amount, so about a 2.1 million dollar purchase price. That requires nine months of reserves.
With 10% down, we can go down as low as 660 middle FICO score. Up to three million dollars on the loan amount, and 100% gifts are okay for the down-payment, reserves and closing costs. Nine months reserves typically, but sometimes there’s exceptions depending on what the rest of the loan package looks like.
Credit for a 5% Down Vacation Home Mortgage
What about credit? 5% down, you’re going to need at least four years after any short-sale foreclosure or bankruptcy. Clean payment history on your other homes in the last year, and a 740 mid FICO score.
10% down, you can do that as soon as two years after short-sale, foreclosure or bankruptcy, and with as little as a 660 middle FICO score.
Reserves for a 5% 2nd Home Loan
What do I mean by reserves? Reserves are funds that are in your account but you show the underwriter, so a lot of times people use 401K or IRA account. Nothing has to be withdrawn from that, it’s just to show that in a worse case scenario, you do have the money to be able to pay the mortgage for a certain amount of time.
Debt to Income Ratio Vacation Home
What about the debt to income ratio? The 5% down is limited to 43%, and 10% down can go as high as up to 55% debt to income ratio. Sometimes there are certain circumstances where if you’re self-employed, or maybe you’re going to sell one of your homes, a second home, but you’re buying another one. You don’t have all the funds to do it right now. This could be a great program to kind of get the deal closed, and then you could always refinance it down the road.
Reasons for a Low Down-Payment Second Home Loan
Couple of reasons why you’d want to do this even if you do have the money down. Leftover funds can be used to personalize and fix up the house, especially if you’re buying a million dollar second home. Putting down 5% instead of 20% is a huge difference. It’s $150,000.00 that could go towards fixing things up in there. The rest of those are pretty self explanatory so I’ll go ahead and move on.