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Let’s clarify what types of properties are not considered a primary home. Understanding Fannie Mae guidelines on second homes is crucial if you plan to finance a vacation home. By meeting the right down payment, credit score, and DTI requirements, you can secure a great mortgage and start enjoying your second home sooner. If you plan to rent it out full-time, it will likely be classified as an investment property, which has different mortgage requirements.

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This is because lenders must assess the level of risk in providing you a mortgage, meaning they determine how likely it will be that you pay back your loan. The riskier the loan situation, the higher the rates and more stringent the requirements for approval will be. While you’ll need to check with your lender for specifics on qualifying for each mortgage type, here are some things to keep in mind. For 1-2 unit properties you simply need enough total income (rental plus your other sources of income) to qualify for an FHA loan based upon the maximum debt to income ratio requirements. However, for 3 or 4 unit properties, the rental income must be high enough to cover the proposed mortgage payment.

Alternatives If You Don’t Qualify for a Second Home Loan

• In the past, lenders would hire people to go knock on doors to verify whether borrowers actually lived in the home.
• They want to avoid situations where buyers incorrectly label investment properties as second homes.
• Lenders and Fannie Mae rely on comprehensive evidence to resolve any questions regarding occupancy status.
• However, renting it out for more than 14 days per year could disqualify you from some of the tax benefits and exclusions you’re eligible to claim.

The home you choose as your primary residence comes with certain tax benefits and mortgage rates that might save you a lot of money over time. However, misclassifying your home could end up costing you, so it’s important to know the difference. Primary residences demand full-time occupancy, whereas investment properties need only satisfy rental occupancy standards. This difference affects mortgage rates, repayment terms, and even tax implications, emphasizing the importance of appropriate property classification to avoid legal and financial issues.

Can You Rent Out a Second Home?

Failure to comply with occupancy requirements can result in severe financial and legal consequences. Lenders monitor occupancy closely and may take immediate action if a property is found not to be a bona fide primary residence. To demonstrate residency, you must provide documents such as an occupancy affidavit, updated identification, and evidence like utility bills or community registration. Lenders may also ask for a statement detailing your daily routines to confirm that the property is your primary residence and to safeguard against misrepresentation.

Can I Get a Second Mortgage to Buy Another House?

This allows you to designate a new home as your principal residence for the year it’s sold, even if you already have another home that’s designated as your principal residence in that same year. This can save you a lot of money if you sell one home and purchase another in the same year. Keep reading to learn the rules for buying a second home and renting out the first in Canada, and how each type of property is treated. Having two properties listed as “personal residences” isn’t evidence of wrongdoing.

Refinancing withdraws a lump sum, while a HELOC allows multiple withdrawals if you don’t need the funds immediately. If specific criteria are met, lenders may allow 50% or more of projected rental income to supplement your qualifying income for a second home. Selling a home classified as your primary residence offers one of the most substantial tax advantages — capital gains tax exclusions. If it’s too close, underwriters may suspect it’s actually an investment property. ✅ When you’re looking to buy a second home, the Fannie Mae guidelines on second homes say that you might need to have some extra savings set aside.

Fannie Mae Guidelines on Second Homes in 2025

• When current lease agreements or market rents reported on Form 1007 or Form 1025 are used, the lender must calculate the rental income by multiplying the gross monthly rent(s) by 75%.
• The designation of your property—whether as a primary residence, second home, or investment property—directly impacts the structure of your loan.
• There are certain special cases where the IRS makes an exception, like if you are a non-occupying co-borrower on an FHA loan or if your family has grown too large for your current residence.
• A second home should be in an area where vacation or seasonal homes are common, such as beachfront areas, lake houses, or resort towns.
• You can buy a second home as a primary residence, that is if you meet the right criteria.

However, you can rent it out for short stays, like on Airbnb or VRBO, but only for part of the year. ✔ If you have a lower credit score, you might have to pay extra fees when getting a loan. Remembering the Fannie Mae guidelines on second homes is important, as they can affect what you pay. So, if you’re looking to buy a second home, understand how your credit score could impact your loan costs. Submit key documents such as utility bills, tax returns, voter registration, and an occupancy affidavit to verify your primary residency.

The initial move-in period is crucial; failure to comply may result in loan default or acceleration, meaning lenders can demand full repayment. Purchasing a second home and renting out your first can be profitable, but there are specific distinctions and things to keep in mind. In particular, be mindful of owner occupancy and down payment requirements, as well as how rental income may be used to qualify for a mortgage. Borrowers can qualify for lower interest rates for a primary residence, saving money over the life of a loan, according to real estate company Redfin. Misrepresentations on mortgage applications are deemed bank fraud, and subject to penalties, prosecution, and even prison time if convicted. If found out, your lender may call the loan due, which means you’d be required to repay the loan in full immediately.

Documenting Rental Income from Subject Property

To get a second FHA loan, you should have a 15% down payment, credit score of 580 or higher, and a DTI that’s under 43%. You may expect a penalty for being a second-time homebuyer looking for an FHA loan, but don’t worry. The FHA considers second-time homebuyers even if they already used an FHA to pay for their first property. These loans are for borrowers who will use the acquired property as their primary residence, not to make money on rentals, as an investment, or for other related reasons.

The interest rate will be the same for you regardless of whether you are using rental income to qualify. Rates are determined by other factors such as your credit scores and down payment. The FHA 75 rule is when a home buyer is capped at using 75% of the rental income of a multi family property to help qualify for the FHA loan. The lender will use the current leases in place or the estimated rental income noted on the appraisal.

Down payments under 20% require mortgage default insurance from the Canada Mortgage Housing Corporation (CMHC). A mortgage broker can assist in reviewing qualifications and finding the best second-home mortgage rates. Second homes are commonly used as vacation properties to qualifying for a mortgage with 2 primary residences escape to on weekends or holidays. Qualifying for multiple mortgages can be challenging, but it’s possible.

There are FHA 100 mile rule exceptions which will allow you to have two FHA loans at the same time without having to move 100 miles away. A highly versatile mortgage option, conventional loans are widely available and suitable for many second-home buyers. Basically, if you’re 65 or older, you have to file a tax return in 2022 if your gross income is $14,700 or higher. If you’re married filing jointly and both 65 or older, that amount is $28,700. If you’re married filing jointly and only one of you is 65 or older, that amount is $27,300.

The fact that they allow you to add depreciation back into the calculation helps you to qualify because it boosts your gross monthly income. See Reconciling Partial or No Rental History on Tax Returns below and Calculating Monthly Qualifying Rental Income (or Loss). When financing your first four properties, you can choose to work directly with a lender or go through a mortgage broker. They can help you find the best mortgage rates for your goals and finances. Also, a mortgage broker who is experienced in real estate investment will likely already be familiar with lenders who are willing to provide multiple mortgages. When buying a home, how the property is classified has a big impact on your finances.