Probably the biggest change in financing for second homes in the past year is the amount required for a down payment compared to primary residences. Where you can still obtain a primary residence for as little as 3 to 5 percent down (0 percent down on some government programs), second homes now require at least 20 percent down. This is really a return to the traditional requirements for the past 100 years (until about 10 years ago when guidelines got a little looser). With the amount of foreclosures and the financial climate we’re now facing, banks and lenders are even more cautious about lending on second homes, so they’re requiring a bigger commitment from the borrowers in the form of a larger down payment.
The good news is that besides the larger down payment on second homes; the interest rates, terms and fees are no different than what a borrower would see for a primary residence. And with rates as low as they currently are and an abundance of homes for sale at more reasonable prices, it really is a great time for those prepared borrowers who have always dreamed of that Up North getaway.
Another consideration with second homes in our area is the jumbo loan. This is any loan above the conforming loan limit (currently anything above $417,000). With all the lakefront homes and cottages in our area, these larger loans are not uncommon. Because of the larger loan size, the smaller number of potential buyers and the fact of being a second home, banks and lenders look at these as higher risk loans and accordingly use different guidelines. These differences include a minimum of 25% down, a stronger credit history and debt to income ratio, and more cash in reserves. And due to the higher perceived risk, you can now also count on the jumbo loan interest rate to be anywhere from 1 to 3 percent higher than a conforming loan.
Dave Durbin, Bay Mortgage, Traverse City, MI, 877-901-9400, bayloans.net
Price comparison: Shoreline east, west and middle