Purchasing another "second home" STR in same location as first

[Account Closed]

Hi all,

I recently purchased an STR in Western North Carolina and am looking at potentially purchasing another. My understanding of the second home loan is that you cannot purchase more than one "second home" in the same region. Is my understanding of this correct, and are there any ways around this? Or is an investment loan the way to go? Thanks in advance.

[Mitch Davidson]

Hi @ account closed. The mileage limit varies by lender. Fannie and Freddie actually don't have a limit. Lenders and their servicers add such rules (called "overlays") to protect themselves. I closed a second home loan recently where the second home was 20 minutes away from the borrower's primary. But it was a cabin in the woods and the primary was quite suburban. And, you can have multiple second homes, but I don't think any lender is going to feel comfortable allowing such unless the new second home is very far away from the other second home(s). One of my clients was a pilot, for example. He bought a second home here (Maggie Valley). He owned 3 other second homes, none of which were in the same state. 

That being said. Buying a home as a second home has very little value anymore. Prior to April 2022 a second home carried the same rate as a primary. FHFA (oversees Fannie and Freddie) decided that they have too much non-owner-occupant inventory, however, and thus changed things so that now the rate and points cost for second is identical to investment. Now, the main benefit of a second home approach is that the minimum down is 10% instead of the 15% minimum you find with investment classification (yes, it's 15% not 20%). Regardless of second or investment, if you put less than 20% down your points cost increases by .5, and you incur MI. And, with a second home approach you can receive a temporary buydown from the seller, as well as gift funds, both of which aren't allowed for investment. But with investment, unlike second, you can use potential rental income from the subject property (as estimated by the appraiser) to help your DTI work.

Hope this helps some.