Down payment percentage for investment property vs second home

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Down payment percentage for investment property vs second home

Cheryl Hewitt
Member since 2019 · 11 posts · 2 votes

I'm interested in purchasing a vacation home (second home) that will be for our use, but also short-term rental when we are not occupying it ourselves. The property is 88 miles from my home. I estimate that we'll occupy it between 14-30 days per year. 

I am getting mixed information on different sites as to whether this would need to be financed as an investment property rather than a second home.

What percentage should I expect to put down? 

Will I need to have reserves to cover 5-6 months of payments? 

TIA

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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y

@Cheryl Hewitt

The mixed message is probably because your loan officer is having different opinions whether this is a vacation or investment property.  Ultimately, they have to make a case to Underwriting for one or the other.  So, its a matter of how/what you tell the loan officer and whether he/she thinks she can successfully make the case.  If you can get it categorized as a second home, then your down payment is whatever your loan product allows and you can afford.  If its an investment property, usually 20% down is as low as you can go, 25% down is the your best interest rate break point, and be prepared to pay an extra ~1.25% in interest because its an investment property.

Good luck.

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Cheryl Hewitt

    The mixed message is probably because your loan officer is having different opinions whether this is a vacation or investment property.  Ultimately, they have to make a case to Underwriting for one or the other.  So, its a matter of how/what you tell the loan officer and whether he/she thinks she can successfully make the case.  If you can get it categorized as a second home, then your down payment is whatever your loan product allows and you can afford.  If its an investment property, usually 20% down is as low as you can go, 25% down is the your best interest rate break point, and be prepared to pay an extra ~1.25% in interest because its an investment property.

    Good luck.

    2Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y

    Underwriting is very strict right now.

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  • Sean McDonnell
    Real Estate Agent · Surf City, NC · Member since 2017 · 648 posts · 597 votes
    6y

    Down payments on second homes/vacation homes can be as low as 10%. There is some grey area as some folks have mentioned above. As I understand it, as long as you just use that property as a short term rental when you are not there, you dont put any long term tenants in the property, the utilities are in your name, and you actually do stay there at least 14 days out of the year, you can purchase it as a second home and only put 10% down. 

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    6y

    If you do put down only 10% on a 2nd home you will likely have to pay PMI.

    0Reply
  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    6y

    @Cheryl Hewitt second home loan no problem at all. If your loan person is being weird just call another one. You can pull credit as many times as you want to shop the loan. As long as it’s for the same purchase.

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Cheryl Hewitt

    Multiple credit inquiries within the same 2-3 week (or so) period are considered one inquiry by the credit bureaus.

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  • Ben Ashburn
    Member since 2020 · 2 posts · 0 votes
    6y

    This Monday we are closing on a STR in Corpus Christi, TX and only put 10% down since it's a second/vacation home and not an investment property. I don't know if this varies by location but it can certainly be done in this area.

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  • Cheryl Hewitt
    OP
    Member since 2019 · 11 posts · 2 votes
    6y

    Thanks for all the feedback, very helpful. I submitted a loan application for a second home. Hopefully I'll hear something back on Monday. 

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