What credit score do you need for a second home loan?
Credit Score – You'll also need a solid credit score — generally 700 or above — to qualify for a second-home mortgage with favorable terms. Debt to Income Ratio – Other financial considerations include your debt-to-income ratio, which should ideally be below 43% to be eligible for purchase of a second home.
Credit Score
That's because a primary residence provides shelter, whereas a second home is a “nice-to-have,” not a necessity. Lenders may consider applicants with a score of 620 or higher, though a score above 700 is preferable when qualifying for a second home mortgage.
To be approved for a second mortgage, you'll likely need a credit score of at least 620, though individual lender requirements may be higher. Plus, remember that higher scores correlate with better rates. You'll also probably need to have a debt-to-income ratio (DTI) that's lower than 43%.
Qualifying for a second home mortgage
Before applying for a vacation home loan, you should know that: You'll likely need at least two months of cash reserves. You'll need to put at least 10% down. Credit score requirements are higher than for a primary residence.
To qualify as a vacation or second home, typically, the property must: Be lived in by the owner for some part of the year. Be a one-unit home that can be used year-round. Belong only to the buyer.
You can usually borrow up to 85% of the home's current value, minus your first mortgage balance. There are also usually minimum credit score requirements of 600 or better, though some lenders may have lower requirements. Keep in mind, the better your credit score, the better the interest rate and repayment terms.
One Spouse's Income Doesn't Meet Requirements
Many lenders use the 2/2/2 rule to evaluate loan eligibility, which typically requires: 2 years of W-2s. 2 years of tax returns. 2 months of bank statements.
Most lenders prefer a down payment of 20% or more. Credit Score – You'll also need a solid credit score — generally 700 or above — to qualify for a second-home mortgage with favorable terms.
Key takeaways. You can get a mortgage with a credit score as low as 620, 580 or even 500, depending on the type of loan. Some mortgage lenders offer bad credit loans with more flexible qualifying requirements but higher costs.
Second Home Financing Options
Be prepared to pay more upfront to get a loan to buy a vacation home. You'll also probably need a higher credit score and a better debt-to-income ratio than you would need for a mortgage for a primary residence.
How to buy a second house without selling first?
How can I buy another house without selling my first? To buy another house without selling your first, explore options such as obtaining a HELOC or line of credit on your existing property. These approaches leverage the equity in your current home to fund the purchase of a second property.
Owning a second home means you have a vacation spot you can return to year after year without worrying about making reservations. A secondary home can also be a valuable financial asset, one that has the potential to increase your wealth over time if the home value appreciates significantly.
Debt-To-Income Ratio Requirements
Most lenders require a DTI of 43% or less to approve you for a second mortgage.
If you still owe a large amount on your current mortgage or have other substantial debts, a second mortgage may put your debt-to-income ratio above the maximum the lender allows. You may be required to make a larger down payment for a second home, and a second mortgage will probably have a higher interest rate.
The downside of buying a vacation home is that you will have two of everything – mortgages, property tax bills, water bills, fuel bills, etc. It also means additional responsibility for repairs and general upkeep. At the same time, owning a second home can be very rewarding in tangible and intangible ways.
High Debt-to-Income Ratio
Your debt-to-income ratio is the percentage of your income that goes toward paying your debts each month. If your debt-to-income ratio is too high, lenders may be concerned about your ability to make your payments. Many lenders look for a debt-to-income ratio of 43 percent or lower.
You can borrow anywhere from a few thousand dollars to $100,000+ with a 630 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
With FICO, fair or good credit scores fall within the ranges of 580 to 739, and with VantageScore, fair or good ranges between 601 to 780. Many personal loan lenders offer amounts starting around $3,000 to $5,000, but with Upgrade, you can apply for as little as $1,000 (and as much as $50,000).
Most mortgages, including conventional loans, require a credit score of 620 or higher. It's possible to get an FHA loan with a credit score as low as 500, but many lenders require higher scores. Borrowers with higher credit scores get better rates and terms than those with low scores.
The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
What is the easiest home loan to get?
Government-backed loan options, such as FHA, USDA and VA loans, are typically the easiest type of mortgage to get because they may have lower down payment and credit score requirements compared to conventional mortgage loans.
If you make $70K a year, you can likely afford a home between $290,000 and $310,000*. Depending on your personal finances, that's a monthly house payment between $2,000 and $2,500. Keep in mind that figure will include your monthly mortgage payment, taxes, and insurance.
| Annual Percentage Rate (APR) | Monthly payment (15-year) | Monthly payment (30-year) |
|---|---|---|
| 6.75% | $884.91 | $648.60 |
| 7.00% | $898.83 | $665.30 |
| 7.25% | $912.86 | $682.18 |
| 7.50% | $927.01 | $699.21 |
Second mortgages are often riskier because the primary mortgage has priority and is paid first in the event of default.
- Use your home's equity for funding.
- Explore specialty loan programs.
- Tap into your retirement accounts.
- Consider a rent-to-own arrangement.
- Leverage seller financing.
