Second Home Mortgage Requirements

Second Home Mortgage Requirements
It can be tougher to get a mortgage for a vacation property.

The Facts

The definition of what is considered a "home," whether first or second, is very broad. In addition to a traditional house, a home may be a condominium, mobile home or boat, among other types. The only requirement is that the property must have eating, sleeping and bathroom facilities. Lenders will offer mortgages on these and other types of properties if you meet their requirements. Be aware that their standards for second home mortgages will be much stricter than for first homes.

Function

The procedure for getting a mortgage to purchase a second home is essentially the same as it was when you got your first mortgage. Begin by shopping around at different lenders to find the one that offers the best rates. Once you've settled on a lender, you can begin the application process. You'll be asked to verify employment and income, as well as information on your debts such as your first mortgage, car loans and credit cards. Once all the information is reviewed, you can close on the loan and receive your money.

Benefits

The interest you pay on your second mortgage is tax deductible, just like with your first mortgage. The IRS does limit the amount, though. As of 2011, you can deduct the interest on up to $1.1 million in debt on both homes combined. Also like a first home, you can deduct interest on home equity loans, again within limits ($100,000 on both houses combined). You cannot deduct interest on any home other than your primary or second.

Considerations

If you are considering renting your second home when you are not there, be aware that the IRS has different regulations. If you rent your house more than two weeks out of the year, you cannot take the full personal mortgage deduction; however, you can take other deductions for rental expenses, such as utilities, taxes and depreciation.

Warning

Lenders will generally have tougher requirements for mortgages for second homes. Because you will be carrying so much more debt, the risk of defaulting is greater. So lenders will generally charge higher interest rates or require larger down payments for second homes. They also may want more of a down payment if you're planning to rent the property when you're not using it. To avoid this, many people refinance their first home, or take out a second mortgage or home equity loan on it, to purchase their second home.