It’s just become harder to get a mortgage on a second home.

First, let’s define a second home or a vacation property versus an investment property. An investment property is purchased to rent out and not used as a permanent residence. A second home or vacation property is not a permanent residence but it also is not used as any kind of rental property.

This is important because an investment property requires a minimum of 20% percent down and the interest rate is quite a bit higher than a permanent residence.

Traditionally, to mortgage a second home, a borrower could put as little as 5 or 10% down; that mortgage rate would be the same as a permanent residence.

What’s happened is that borrowers gamed the system by claiming a home was a second home but in reality, they used it as an investment property. They got the home with as little as 5% down and the same mortgage interest rate as a permanent residence so their cash flow was much better.

However, the Feds have now priced mortgages for second homes higher than even that of an investment property, making it very difficult for borrowers to finance a vacation home today. The rate is very high and pricing becomes a problem because that high rate means a much higher monthly payment. Because some borrowers gamed the system, it ruined a great loan program for people wanting to do it the right way.

For any questions on mortgage loans or finding the best interest rate, contact Indigo Mortgage. No one cares more about your mortgage loan.