In this blog post, we will discuss the strategies and financing options for purchasing second homes and investment properties. Josh High, a broker at Swift Home Mortgage, shares his expert advice on the various options available for potential buyers.
Second Homes:
The Federal Housing Finance Agency (FHFA) has increased loan-level pricing adjustments for second homes and investment properties, making them less attractive in terms of financing costs. However, they still present a great opportunity for diversifying your real estate portfolio.
- The minimum down payment for a second home is 10%, but this comes with higher closing costs and private mortgage insurance (PMI).
- A 20% down payment eliminates the need for PMI and reduces closing costs.
- A 25% down payment is the sweet spot, as it offers the best financing terms without substantial improvements above this threshold.
Investment Properties:
Investment properties are highly popular, and there are several financing options available.
- Conventional Loans:
- A minimum down payment of 15% is required, which comes with PMI and higher interest rates.
- A 20% down payment reduces PMI and closing costs, making it a more attractive option.
- Debt Service Coverage Ratio (DSCR) Loans:
- These loans focus on the property’s ability to cover its monthly expenses through rental income.
- They do not require personal income, tax returns, or employment information.
- The loans can be held in the name of an LLC, making them an excellent option for investors with multiple properties or those with complex tax situations.
- While the interest rates are slightly higher, the ease of use and fewer hoops to jump through can make them a more attractive option for certain investors.
Conclusion:
When considering purchasing a second home or investment property, it’s crucial to explore all available financing options and weigh their pros and cons. Consulting with a knowledgeable broker like Josh High can help you make the right decision for your financial situation.
