The Complete Guide to Minimum Down Payments for Second Homes with a Conventional Loan

Buying a second home can be an exciting next step for many homeowners Having a vacation property or another place to call home provides more space for your family and opens up opportunities for rental income However, qualifying for and securing financing on a second property brings some unique challenges compared to buying your first home.

One key difference is that lenders typically require larger down payments on second homes – usually at least 10% for a conventional loan While first-time home buyers can qualify for 35% down payment programs like FHA loans, these options don’t apply for a second residence.

In this comprehensive guide, we’ll break down everything you need to know about minimum down payments when buying a second property with a conventional mortgage, including:

Why larger down payments are required
Conventional loan down payment options
Tips for saving for your second home
Alternative financing options
Factors that influence your down payment
Common mistakes to avoid

Why Do Second Homes Require Larger Down Payments?

There are a few key reasons why lenders require higher down payments on second homes versus primary residences

Higher Risk – From the lender’s perspective, a borrower purchasing their second home inherently carries more risk. The larger down payment helps mitigate that risk.

Debt-to-Income Ratios – Taking on another mortgage affects your debt-to-income ratio. The higher down payment helps counterbalance the additional debt.

Mortgage Eligibility – First-time homebuyer assistance programs only apply to primary residences. Second homes don’t qualify for these low down payment options.

Underwriting Criteria – conventional loans adhere to specific underwriting guidelines for down payments on second homes, typically requiring at least 10% down.

So in short, higher down payment requirements help reduce the lender’s risk and ensure borrowers have the assets and income to manage the additional mortgage obligation.

What Are the Down Payment Options for a Conventional Second Home Loan?

While conventional mortgages offer some flexibility, here are the most common down payment requirements for second homes:

10% down – This is the minimum for a conventional second home loan. A 10% down payment strikes the right balance for many borrowers and lenders.
15% down – Some lenders require larger down payments for second homes, usually 15% to 20%. Putting more down can help you secure a lower interest rate.
20%+ down – Down payments above 20% give you the best rates and avoid private mortgage insurance (PMI). But they require more cash upfront.

Within those parameters, you can typically choose the down payment amount that works best for your budget and goals. Talk to potential lenders to understand their specific requirements before you shop for your new home.

Tips for Saving for the Down Payment on Your Second Home

Coming up with a 10% to 20% down payment can take diligent saving for many buyers. Here are some tips to help boost your down payment savings:

Start saving early – Give yourself plenty of time to reach your down payment goal. Starting too late can mean compromising on your dream home.
Set up automatic transfers – Arrange for a portion of each paycheck to automatically go into your dedicated down payment savings account.
Limit non-essential spending – Cut back on dining out, entertainment, shopping trips, and subscriptions temporarily while saving.
Earn extra income – Take on a side gig like ridesharing, freelancing, or renting out unused space to generate more cash.
Use windfalls wisely – Put any tax refunds, work bonuses, gift money, or inheritance funds straight into savings.

With careful planning and budgeting, you can make saving for that larger down payment more manageable.

Alternative Financing Options for Second Homes

While conventional loans are the most common approach, you may also want to consider these alternative financing options:

Home equity loan – Tap into your existing home equity with a cash-out refinance or home equity loan.
Family gift – Receive a financial gift from a family member to use as your down payment.
401(k) or IRA funds – Use retirement savings for your purchase, if allowed by your plan. (There are pros and cons to weigh.)
Assumable mortgage – Take over the seller’s existing low mortgage rate by assuming their loan.
Interest-only loan – Pay only interest on the loan for the first few years to reduce monthly costs.
Shared ownership – Co-own the second home with family or friends to make the down payment more manageable.

Talk to both real estate and finance professionals to fully understand the unique tradeoffs with these options before moving forward.

What Factors Determine Your Minimum Down Payment?

While 10% down is the conventional baseline, your specific down payment requirement can shift up or down depending on these key factors:

Credit score – Excellent credit of 740+ typically qualifies for lower down payments. Scores below 700 may require 20% or more down.

Co-borrowers – Adding a co-borrower who also contributes income can allow for lower down payment levels.

Debt-to-income ratio – Lower DTI ratios support smaller down payments, while high DTIs call for larger down payments.

Loan type – Adjustable rate mortgages sometimes allow lower down payments than fixed rates.

Lender policies – Each lender sets their own underwriting criteria, so down payment minimums vary.

Property type – Unique properties like multi-units may require 20% down or more.

As you can see, your down payment options expand and contract based on your financial profile. Consulting lenders early gives you time to improve any areas needed to qualify for a lower down home loan.

Common Mistakes to Avoid When Making a Second Home Down Payment

While second home purchases offer many rewards, it’s important to avoid these common mistakes around down payments:

Putting down less than 10% without realizing the implications
Depleting all your savings to fund the down payment
Failing to factor in closing costs beyond just the down payment
Neglecting to set aside additional savings for maintenance and repairs
Overlooking how a larger mortgage payment impacts your monthly cash flow
Not accounting for higher insurance, interest rates, and property taxes on a second home
Relying on uncertain or risky sources for your down payment funds

Being aware of these pitfalls upfront allows you to plan carefully and avoid surprises. A 10% down payment on a $500,000 vacation home equals $50,000 required upfront – so you want to be fully prepared before starting your search.

The Bottom Line

While second homes allow you to enjoy that dream vacation property or expand your real estate portfolio, they come with higher down payment requirements than primary residences. For a conventional loan, plan on having at least 10% down, if not 15-20%.

Factoring the down payment into your home buying budget, timeline, and savings goals is key. Explore all your financing options, understand the influencing variables, and avoid common mistakes. With the right planning and preparation, you can make your second home dreams a reality, even with today’s down payment requirements.

Combine any of the above

Pros	Cons
MULTIPLE SOURCES CAN PROTECT YOUR CREDIT SCORE AND DTI, AND ENSURE YOU HAVE ENOUGH CASH ON HAND FOR EMERGENCIES.	ANY OF THE DRAWBACKS ABOVE MAY STILL APPLY, BUT WITH LESS IMPACT ON YOUR FINANCIAL SITUATION.

Sale of an asset

Pros	Cons
SELLING AN ASSET TO FUND YOUR DOWN PAYMENT CAN SIMPLIFY YOUR FINANCIAL SITUATION AND LESSEN PHYSICAL AND FINANCIAL RESPONSIBILITIES.	LENDERS MAY BE LESS LIKELY TO GIVE YOU FAVORABLE TERMS IF YOU DON’T HAVE SOLID ASSETS FOR COLLATERAL.

Pros	Cons
THERE’S VERY LITTLE RISK INVOLVED WITH USING YOUR RETIREMENT FUND FOR A DOWN PAYMENT IF YOU HAVE PLENTY OF TIME BEFORE YOU RETIRE.	YOU WILL FACE PENALTIES, FEES AND TAXES ON THE MONEY YOU WITHDRAW FROM YOUR RETIREMENT FUND, MAKING IT AN EXPENSIVE FINANCING OPTION.

HOW DO I BUY A SECOND HOME? | MORTGAGES FOR SECOND HOMES

FAQ

Do you need 20% down on a second home?

How much do I need for a down payment on a second home? The down payment for a first home can be as low as 0% and as high as 20% for a conventional loan. But the required down payment for a second home is around 10%, and sometimes more than 20%.

Can I get a second mortgage with 5% down?

On a second home, however, you will likely need to put down at least 10%. Because a second mortgage generally adds more financial pressure for a homebuyer, lenders typically look for a slightly higher credit score on a second mortgage.

What is the minimum down payment for a second home fannie mae?

You can use a Fannie Mae loan to buy a primary or secondary residence, or an investment property, while government-backed loans only allow you to buy a primary residence. One caveat: The down payment requirements are higher for second homes (10% minimum) and investment properties (20% minimum).

Can you use a conventional loan for a second home?

Yes. You can finance your second home purchase with a conforming conventional loan or a jumbo (non-conforming) conventional loan. Most lenders define a second home as a property that: is a single-family home, also known as a one-unit dwelling.

What is the minimum down payment for a second home?

In fact, on average, most first-time homebuyers place a down payment of just 8%. But with a second home, most lenders require a minimum down payment of 10%. However, the minimum down payment required can vary widely depending on several factors, including the lender’s policies, the property’s location, and how you plan to use the home.

Do you need a down payment for a conventional mortgage?

All conventional mortgage loans require a down payment. But the amount you need can vary widely. Home buyers can make a conventional down payment anywhere between 3% and 20% (or more) depending on the lender, the loan program, and the price and location of the home.

How much down payment do you need for a home loan?

With a conventional loan, you’ll typically need to front at least 10% of the loan amount as a down payment. For jumbo loans, the down payment escalates to 20% or more. Government-backed loans like VA and FHA mortgages are generally not an option for financing a new home that won’t be your primary residence.

How much money do you need to buy a second home?

To qualify for a conventional loan on a second home, you’ll likely need to put down at least 10% — though some lenders require down payments of 20% to 25%. The down payment requirements will depend on factors like your loan type, credit score, and debt-to-income ratio.