What down payment do you need for a second mortgage?

What down payment do you need for a second mortgage?

Are you surveying the real estate market to purchase your dream family vacation home? There is a strong chance that you will be required to get a second mortgage on your existing property to purchase that one. A second mortgage is completely different from applying for a mortgage on a primary residence. While most individuals find it hard to purchase a second home with cash, many people choose to opt for a mortgage. Before you decide to purchase a second home, you must remember to keep a few things in mind to ensure you can afford enough capital to make a down payment and much more.

  1. Will I be able to afford a second home?

Have you ever considered when purchasing property, how much money you will need to make as a down payment? Below mentioned are a few must-knows about down payments to give you a clear picture about purchasing a second home. Before you go ahead with this significant financial decision, you will need to ask yourself if you can afford a second home. Firstly, you must add up all the costs, including the costs that go into the purchase, such as the down payment, scheduled monthly mortgage payments, closing costs, property taxes, insurance, utility payments, and other necessary payments.

  1. Identify the difference between your primary home mortgage and secondary home mortgage

With your primary home mortgage, you can make a down payment of as little as 5% based on how good your credit score is, including other factors. However, on a second home mortgage, the minimum down payment that one is expected to put down is 10%. The reason being a second mortgage adds more pressure to the property buyer. Additionally, lenders when issuing a second mortgage, look for borrowers who have a high credit score to reduce the risk of default payments. Unlike your primary mortgage, where your interest rate is low, a second mortgage interest rate may be higher. The process of applying for a second mortgage is similar in relation to a primary mortgage. With any loan product, it is highly recommended that you do your necessary due diligence, interact with as many lenders as you possibly can, and choose the best mortgage product that suits your specific requirements.

  1. How to qualify for a second mortgage?

Before you plan on applying for a second mortgage, you must ensure you review your credit score, assets and income, just like how a lender would. You need to have additional money kept handy that will be able to take care of your mortgage payments in the event you are temporarily struggling financially. For well-qualified individuals will need a minimum of two months of reserves. For both homes, all is required is one month of reserve funds to take care of the scheduled mortgage monthly payments on both the properties. Depending on your credit score and the down payment you make, the Debit-to-Income ratio for a second home mortgage may vary. Ideally, the more money you put as a down payment, and if you have a high credit score, there is greater chance for your lender to give you a higher DTI. Some property owners cancel out their expenses by putting their vacation homes on rent when not in use. It could result in a violation of mortgage terms as the property is used as an investment instead of a second home, which puts the lender at a higher risk. Doing this could violate your mortgage terms because you are using the property as an investment instead of a true second home, resulting in a higher risk to the lender.

For the property to be qualified as a second home, it must:

  • Ensure the owner of the property lives for some period during the year.
  • Be a one-unit property that can be used all year round.
  • Belong to the property owner
  • Not be put for rent
  1. Various options for making a down payment on your second home

There are a few options you must keep in consideration when making a down payment on your second home. You could use a cash-out refinance or even open a Home Equity Line of Credit (HELOC) on your existing property, and the savings from that can be used to make the down payment.

  • Cash-out refinance

Over time, if you have built a sizeable amount of equity in your primary property, a cash-out refinance gives you the opportunity to make use of that equity, especially if your property has increased in value over time. Borrowers who have a great credit score can borrow up to 80% of the equity of their current property’s value. If you decide to opt for this method of financing, you must make sure that you are able to pay off the large monthly mortgage payments on your primary home.


If you have enough equity in your primary residence property, you can take out a line of credit and use the money to make a down payment on your second property. This ensures you not requiring to refinance your current mortgage. It can seem quite a challenge buying a second home, but if you are sure of what to expect and look after your finances, it could be a lot less easy than you think. Keep the above-mentioned factors in mind, and getting a second mortgage will be a breeze.

How much capital is needed for a down payment

You are no longer required to make a 20% down payment to buy a second home. As little as 3% is more than sufficient to make a down payment to purchase a property. However, if you decide to make a lower down payment, you must bear in mind that the interest rate will be higher.

Contact Matrix Mortgage to find out more information on a second mortgage, and why it is the best option to suit your financial situation when deciding to purchase a second property. Please do not hesitate to speak to our professional and friendly team and take the first step to getting prequalified.