On your primary mortgage, you might be able to put as little as 5% down, depending on your credit score and other factors. On a second home, however, you will likely need to put down at least 10%.
Down Payment: Be prepared to put down at least 10% of the purchase price. This is higher than the minimum required for primary residences because lenders consider second homes a bit riskier. Credit Score: Lenders may also have stricter credit score requirements for second homes.
Federal Housing Administration (FHA) loan: With an FHA loan, you'll need at least a 3.5% down payment. To qualify for the minimum 3.5% FHA down payment, you need a credit score of 580 or higher. If your credit score is between 500 and 579, you'll put down at least 10%.
On your primary residence you can do 5% down, but on a vacation home you will need to do 10% or an alternative loan type (which almost certainly will not lower the down payment requirement).
Con: Special Attention and Maintenance
As the owner, you will either need to pay for a landlord to take care of your house, or you will need to roll up your sleeves and do it yourself.
To comfortably afford a $200,000 house, you'll likely need an annual income between $50,000 to $65,000, depending on your specific financial situation and the terms of your mortgage. Remember, just because you can qualify for a loan doesn't mean you should stretch your budget to the maximum.
Since two-story homes have a smaller footprint, they're usually more cost-effective to build, and there are many more design options to choose from.
The Bottom Line. On a $70,000 salary using a 50% DTI, you could potentially afford a house worth between $200,000 to $250,000, depending on your specific financial situation.
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.
If you're someone who would be reliant on rental income to afford your second home, you may want to opt for a series of seasonal rentals you return to year after year.
If you're going to convert the property into a short-term rental property, you can use websites like AirBnb and VRBO. You may also want to consider any offline opportunities to market your property if you're looking for longer term tenants.
The FHA allows you to buy a second home for main living purposes but will not help you fund a second home to rent for money or as a vacation home.
Debt to income ratio
The DTI mortgage requirements for a second home vary by lender, but your total debt load should be less than 36% to 50% of your gross monthly income. These limits ensure that you have enough money to pay taxes, monthly household expenses, and cover any unexpected bills that may occur.
Yes, it is possible to purchase an investment property without paying a 20% down payment. By exploring alternative financing options such as seller financing or utilizing lines of credit or home equity through cash-out refinancing or HELOCs, you can reduce or eliminate the need for a large upfront payment.
When it comes to price per square foot, the two-story home is the more affordable option — even when comparing the same amount of square footage. Since ranch homes have larger foundations, they cost more per square foot. But with two-story homes, the foundation stays the same as you expand upward.
That depends on market and current material prices
Generally speaking, building up tends to be less expensive than a basement. That said, not too long ago, lumber was at an all-time high and basements were the better option.
If your home's energy efficiency is a concern, you may want to consider a two-story house. For the most part, a typical two-story home uses less energy than a one-story home of equal square footage. This is thanks in part to smaller foundation and roof space.
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
A person who makes $50,000 a year might be able to afford a house worth anywhere from $180,000 to nearly $258,000. That's because your annual salary isn't the only variable that determines your home buying budget. You also have to consider your credit score, current debts, mortgage rates, and many other factors.
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.
Qualifying for a second mortgage with bad credit is challenging, especially since lenders set a high bar for these inherently riskier loans to begin with: Many expect your FICO score to be at a minimum “good” (670) or high “fair” (640-669). Still, qualifying is possible, especially if you have a sizable equity stake.
Just like your first mortgage, you can prequalify and receive a conditional approval letter for a second mortgage before starting your property search. Interest rates for second mortgages are generally higher than first mortgages.
For the IRS to consider a second home a personal residence for the tax year, you need to use the home for more than 14 days or 10% of the days that you rent it out, whichever is greater. So if you rented the house for 40 weeks (280 days), you would need to use the home for more than 28 days.