More Homeowners Get Comfy With Second Properties

By: Laura Mandaro: REALTOR® Magazine Online
As the lure of investment sends many back into the real estate market for a second or third home, buyers are encountering stricter loan requirements than apply on their primary home such as down payments of up to 30 percent, compared to the 20 percent that is standard on conventional loans with no mortgage insurance.

Additionally, lenders will demand a lower debt-to-income ratio, meaning that investors' total debt may not exceed 35 to 40 percent of their gross monthly income whereas debt payments on a primary residence may stretch as wide as 50 percent.

Moreover, loans for second homes or investment property frequently are issued at interest rates one to two percentage points higher than those funding first purchases, due largely to the belief that owners will have less incentive to make the payments on a second home than on their primary residence should financial trouble arise.

Many investors are drawn to interest-only products, as they intend to sell the property by the time their payments increase to include principal.