UPDATED: JULY 2021
Thinking of financing a second home or investment property in the Smokies? Here are some of the most frequently asked questions from our buyers purchasing their first vacation home:
1. What is the minimum amount I can put down?
For second home properties, our buyers can put as little as 10% down. If you are putting less than 20% down, there will be private mortgage insurance included in your monthly payment until your loan balance reaches 80% of the home’s original value. As of October 2018, the rates for mortgage insurance have remained as low as .30% annually (or $75/month for a $300k loan amount) for borrowers with good credit. Investment property loans require at least 15% down.
2. What do rates look like?
Like all correspondent lenders, we get new rates sheets every day when the market opens. We start with the base rate and add adjustments for loan size, loan term, down payment, and credit score when calculating a client’s rate. Second home rates are now slightly higher than primary residence and higher rates apply for investment property loans.
Note: The conforming loan limit is $548,250 which means loans over that amount are considered jumbo loans and have their out separate guidelines to qualify on.
3. If rates are higher, why would I use the investment property product? What’s the difference?
Certain buyers are better suited for an investment product. This might include someone who:
* Requires future rental income from the property he or she is purchasing to qualify for the loan
* Already owns a second home in the Smokies
* Has no intention of using the home for personal use (this would include renting the property out on a long-term lease)
* Intends to use a property management company that will not give the owner control of when they can stay in the home.
4. Can I do overnight rentals if I use second home financing?
Yes! Just make sure that you maintain the ability to block out time for personal use. Black-out dates for peak seasons and holidays are a deal breaker.
5. I have decided that the second home product is best for me, but I noticed that my seller included language in our sales contract requiring me to use a specific management company. Will that cause any problems with my loan?
It could! If that language is present we will be required to review the management company’s contract to determine that you will be able to use the home for personal use at your discretion per second home guidelines.
6. What’s the minimum credit score needed to qualify?
The minimum credit score for investment and second home purchases is 620. If you are unsure of where you stand, give us a call and we can go over this with you. If you are short of qualifying, we may be able to increase your score within 7 business days!
7. Ok, I’m pre-qualified and I found my dream house. When can we close?
You and your seller will negotiate a closing date at the time your sales contract is signed, but most purchase and sale agreements set closing for about a month after the contract is bound. This allows time for you to collect and submit your credit documentation to us, the appraisal to be completed, and for title work to be completed.