While it is possible to buy a second home without a down payment, the scenarios where you can do so are quite rare.
Traditional zero-down payment programs may not be available to you because you’re no longer a first-time homebuyer. Lenders are also hesitant to offer second home mortgages with low down payments. The down payment requirements for a second home are usually 10% or more.
But you may be in luck: Sometimes you can figure out how to buy a second home with no down payment. Read on to learn:
• What does buying a second home involve?
• What are the usual down payment requirements for a second home?
• How can you buy a second home with no down payment?
What to Know About Buying a Second Home
Buying a second home comes with a different set of guidelines and rules than purchasing your first home. You’re no longer considered a first-time homebuyer, which disqualifies you from many down payment assistance programs. However, your situation will be treated differently depending on how you want to use the property. Consider the following possibilities:
Moving into the Second Home
If your plan is to keep your first home as a rental property and move into the second home, you may have some options. A low interest mortgage loan may be available in one of two ways.
• USDA loans in approved areas have zero down payment options. You’re allowed to get a second home with a zero-down USDA loan if you meet certain requirements involving citizenship, income, and other factors. You must live in the property as your principal residence, and you cannot have a USDA loan on your first property. In addition, you must financially qualify for both homes. To count rental income for the first home, USDA requires 24 months of rental income history.
Other qualifiers for this kind of loan include:
• The current home no longer meets your needs for certain reasons (for example, if your family is growing and you live in a two-bedroom home, you’re relocating for a new job, or you’re getting divorced).
• You don’t have another way to obtain the property without the USDA loan.
• You can only keep one other house besides the new second home.
If, say, you’re moving from to a new region for a job opportunity and USDA loans are available in the area you’re moving to, it’s possible to keep your first home and buy a second if you meet the above conditions.
Worth noting: An obstacle for borrowers can be that lenders need a way to verify rental income. A signed lease and bank statements may not be enough. Your lender may want to see the rental income reported on your taxes for two years to count.
• VA Loans may also offer zero down payment options. Available to veterans, service members, and surviving spouses, these government-backed loans can only be used to purchase property that will be a primary residence. So, if you’re moving from one place to another and qualify, you can use a VA loan to purchase the next property with no money down.
Buying the Second Home as a Vacation Home or Rental
Is there a way to buy a second home with no down payment if you plan to use it as a vacation home or rental? Options are few and far between if you’re not planning to use the property as your principal residence. When you’re looking at non-owner-occupied financing, lenders usually want a bigger down payment, not a smaller one.
That said, here are a couple of options that could answer the question of how to buy a second home with no down payment:
• Private loans: If you finance through a relative or other private source, it’s possible to obtain a no-money-down mortgage. Terms are agreed upon by both parties.
• Seller financing: Much like a private loan, the conditions of seller financing (aka owner financing) a loan are whatever the two parties agree on. If the seller is willing to let you buy the property with no money down, you might be able to make this work. However, seller financing usually comes with a bigger down payment, not a smaller one.
Do You Need a Down Payment on a Second Home?
Down payment requirements for a second home are usually higher. Lenders also look for a higher credit score. The loftier down payment requirement and credit score reflect the fact that the lender is taking on elevated risk since borrowers are more likely to default on a second home than a first home. A lender may expect your down payment to be right around the average down payment on a house, which is currently 13%.
Yet, your mortgage lender is also looking for a loan that accommodates your unique situation to help you to buy a second home. Though no down payment options are rare, your lender may have access to financial products that allow for a smaller down payment.
Can You Buy Another Home When You Have a Current Mortgage?
If you financially qualify, buying another house when you have a mortgage is possible. Generally speaking, lenders look for a strong credit history and enough income to cover your debts (including the cost of the new mortgage) to determine if you qualify for an additional mortgage.
Recommended: What Is a Second Mortgage?
Using Home Equity as a Down Payment Source
If you don’t have enough cash for a down payment on a second home, you may be able to tap your home equity. A home equity loan or a home equity line of credit (HELOC) can help you access money to use for a down payment on a second home.
Though not all lenders will permit this, using home equity may be possible if you want to keep your first home and have no other way of obtaining enough money for a down payment on your second.
It may be advisable to get a home equity loan or HELOC while you are still living in your first house. This allows you to qualify for owner-occupant rates, which are typically much lower than non-owner-occupied rates.
Recommended: HELOC vs. Home Equity Loan: How They Compare
The Takeaway
While there aren’t many options for financing a second home with no down payment, you may be in luck. There are some no down payment loans available to qualified buyers, and these loans can help you preserve cash for renovations, improvements, and other expenses. Even if you can’t find a no down payment mortgage for a second home, you will likely have a number of financing options you can tap into that may allow you to snag another property.
When you’re thinking about home financing options, whether for a mortgage or a HELOC, you’ll want a flexible, helpful partner to help you through the process. SoFi can do just that. In addition to mortgage loans, we offer a home equity line of credit that can help you tap into your home’s value and use the funds for a variety of purposes. You can access up to 95% of your home’s equity up to $500,000, enjoy low interest rates, and have a dedicated SoFi Mortgage Loan Officer to guide you.
Unlock your home’s value with a home equity loan brokered by SoFi today.
FAQ
What is the minimum down payment for a second home?
For a second that is not going to be your primary residence, most lenders look for at least a 10% down payment.
How do I buy a second home without 20% down?
With a higher credit score and other financial qualifications, you may be able to find a lender or a program with a required down payment less than 20%.
Can I buy another house if I already have a mortgage?
If you’re a qualified buyer with good debt and income levels with a strong credit history, a lender may be able to approve you for a second mortgage.
Can I use my equity to buy another house?
It may be possible to use home equity to buy another home. Contact a lender to go over your unique situation.
Photo credit: iStock/Nuttawan Jayawan
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