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Read our collection of guides and articles about homebuying to help you on your mortgage journey.

![Man Pointing Next to a Child  Outside of a Large Open Window](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fca6fae6221564d3bbebe45838b7b42c2)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">How to prepare for your home search ahead of time</p>

<p class="learnfont">How to determine your wants and needs lists and narrow down location</p>

  <p class="learnfont">What aspects and features to consider when touring a home</p>

  </div>
  <br><br>

  House hunting is hands-down the most exciting stage of the homebuying process, but it can also be one of the most nerve-wracking. You probably have some idea of the things you need in a home, the things you want in a home, and things you absolutely don’t want in a home. But when you tour a home in person, it’s easy to lose focus or pay attention to the wrong details.

There are typically two ways to see a home that’s on the market: attend an open house or schedule a private tour. In some instances, you may also have the opportunity to do a virtual tour of the home—which can be a useful alternative if you're unable to attend in person. 

As the name suggests, an open house is an open invitation for anyone to show up and inspect a home during set hours. A listing agent will be there to field questions and give interested parties more information on the home. Private tours are usually set up with the listing agent or your own [real estate agent](https://better.com/find-an-agent). When a home really catches your eye, it’s typically better to schedule a private tour so you can take your time asking questions and take any measurements and photos. 

This guide will help you focus your thoughts and stay organized as you prepare for home tours, so you can make informed decisions and place an offer with confidence.

<h2>How to prepare for a home tour</h2>

<h3>First things first: Find out how much home you can afford</h3>

Before you start browsing listings, let alone touring homes, you should have an idea of what you can afford. To avoid getting your heart set on a home that’s out of your financial reach, spend a little time with a [mortgage affordability calculator](https://better.com/content/a-better-home-affordability-calculator/). These kinds of tools can help you confirm hypothetical home loan amounts, purchase prices, monthly mortgage payments, and whether you have enough in down payment savings.

<h3>Pro tip: Come prepared with a pre-approval letter</h3>

Confirm your eligibility for a home loan by going through [the pre-approval process](https://better.com/content/what-is-a-mortgage-pre-approval/). (FYI: it takes as little as 3 minutes with Better Mortgage, and it doesn’t require a hard credit check.) A pre-approval letter will provide you with a more accurate estimate of how much you’ll be able to borrow once you meet your lender’s conditions. Pre-approval letters can also add leverage to any home purchase offers, because they show agents and sellers that your offer is serious and you’ve already done the legwork to secure future financing.

<br>
 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get pre-approved</a>  
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<h3>Make a list of your “needs” vs. your “wants”</h3>

Once you have an idea of what you can afford, it’s time to think about what your ideal home looks like. Start by making a concrete list of the things you absolutely need. 

Perhaps you require a certain number of rooms to accommodate your family, work, or lifestyle. For example, you know you’ll need three bedrooms for your growing family, or an extra room to serve as a home office because your company’s going remote. Understanding your must-haves will help you narrow down your home search so you won’t waste time touring houses that aren’t quite right.

Next, make a list of your wants—the features and things that may be nice to have but you could live without. These might include things like yard space, new appliances, or a fireplace. In other words, they’re things you picture in your dream home, but you could live without them. These will come in handy to weigh the pros and cons of similar properties. 

If you’re having trouble determining a need vs. a want, think about whether the feature would be easy and affordable to change once you move in, or whether it would be impractical or prohibitively expensive. For example, adding a dishwasher is a relatively small and inexpensive project compared to adding a garage. So, if your heart is set on a garage, you might consider that a need. 

If you’re looking at home listings online, they’ll likely have different criteria you can use to filter listings. If you’re working with a real estate agent, talking to them about your needs and wants will help them find properties that may work for you. 

<h3>Location, location, location</h3>

There’s a reason why “location, location, location” is such a common refrain in real estate. The address of your home can play a significant role in its appreciation as an investment. And if you plan on living in the home for even a short period of time, you want to make sure it’s somewhere you’re comfortable spending time. Before deciding on a location, it’s worth considering:

- <strong>Lifestyle and preferences:</strong> Are you looking for a home in a quiet suburb or a condo in a walkable downtown area? Do you want an acre of land, or do you want to avoid lawn maintenance altogether? Are you comfortable with a house on a main road, or would you prefer something more tucked away? Having some basic lifestyle criteria will help narrow your search.
- <strong>School district:</strong> If you have kids or plan to have a family in the future, school districts might be a major factor in your home search. Not only can schools affect your kids’ education experience, but they can also [affect property values](https://better.com/content/how-do-school-districts-affect-homebuying/).  
- <strong>Property taxes:</strong> Take a look at the last decade of [property taxes](https://better.com/content/how-to-calculate-property-tax-on-a-house) for the counties where you’re thinking about touring homes to get an idea of how  your property taxes may change over time. Increases in property taxes may not be a bad thing—often, it’s a sign of growth, improvement, and more services and resources for residents. Just be sure to consider the costs in your [budget](https://better.com/content/how-to-budget-for-your-monthly-mortgage-payment/).
- <strong>Neighborhood and surrounding areas:</strong> Do your research to learn about overall livability ratings for categories like crime, amenities, and walkability. Consider driving around any areas you’re considering to see how well-kept homes, streets, and local parks are. 
- <strong>Future zoning and infrastructure:</strong> Ask your real estate agent and/or the listing agent what they can tell you about any major changes planned for the area. Are there major development or infrastructure projects planned? New developments can mean increased traffic, but they might also mean increased property values. 

Considering these location factors can help give you a clearer picture of where you’ll want to live. 

<h2>Tips for touring a home</h2>

Now that you have nailed down some important criteria for finding the perfect home, it’s time to start seeing some properties.

A home tour is your best chance to ask questions and see if the property fits your needs. Here are some important things to think about as you’re touring homes: 

<h4>What to consider during the home tour</h4>

<strong>Structural condition, utilities, and HVAC</strong>

As you walk through a house, keep an eye out for any major cracks in the walls, floors, and ceilings. Structural damage, roofing, and HVAC systems are expensive fixes, so don’t be afraid to ask about any significant issues or renovations that may have occurred. 

<strong>Water damage and smells</strong>

Look out for signs of water damage or mold, which may indicate a moisture problem. Water damage can lead to significant structural problems and can be very difficult (and expensive) to fix. You’ll also want to take notice of any strong odors from smoke or pet urine, which can be persistent and difficult to remove entirely. 

<strong>Storage space</strong>

You’ll likely notice if there are plenty of closets, cabinets, and other storage areas, but it can be easy to overlook their absence. If you’ll need to add dressers or other storage, they can take up significant space in a room, so it’s good to keep in mind when you’re visualizing how you’ll use a space. 

<strong>Parking </strong>

Homes in a city or downtown area may not always come with designated parking spots. If you commute or otherwise use your car often, you’ll want to find out what the parking situation is like and if there’s street parking or other parking options available. Parking can get competitive quickly in more densely populated areas. On the other hand, neighborhoods with ample parking may have regulations about street parking which is something to consider if you like to entertain. 

<strong>Don’t get caught up on the small things</strong>

It’s easy to get distracted by dated appliances, paint or wallpaper that doesn’t match your taste, and other cosmetic details. Keep in mind that many of the things that will catch your eye during a home tour are fairly simple and relatively inexpensive to change. The bones of the house and utility systems are far more important to consider for the long term than the shag carpeting that can be easily removed. 

<h2>Update your must-haves</h2>

As you visit more homes, you might find new things you’re willing to compromise. Don't be afraid to update your wants and needs as you go. You may decide that you can’t deal with a small kitchen afterall, and that’s okay. Touring homes is a learning experience. 

<h2>What happens next?</h2>

Whether it takes one house tour or dozens, there’s no doubt that finding “the one” is an exciting experience.

Before you jump into an offer, take time to review your wants and needs list. If you can, walk the area during different times of day to get a sense of traffic, lighting, and noise. If you have the opportunity, talk to your potential neighbors to introduce yourself and ask questions about the area. 

You’ll also want to make sure “the one” works with your budget. While the asking price might fit into your pre-approved limit, there are other factors that can affect affordability like homeowners association fees, homeowners insurance, taxes, and utilities. 

When you’re ready to put in an offer, talk to your real estate agent to see if there are other contenders and what those offers might look like. Asking about recent sales of comparable homes (comps, for short) can give you an idea of how competitive the market is in that area. Your real estate agent can help you answer any questions and submit a [competitive offer](https://better.com/content/home-by-summer-june-to-dos-make-a-competitive-offer/).

Ready to start your home-touring journey? [Get pre-approved for a mortgage](https://better.com/preapproval/786066c2-f873-4c65-a64c-0cc34202d7f6) today, so you’ll be ready to put in an offer when the perfect house comes along.

<h2>Frequently Asked Questions About Touring a Home</h2>

<strong>Question:</strong> How should I prepare before touring homes?
<strong>Answer:</strong> Before touring homes, it's essential to understand what you can afford. Use a [mortgage affordability calculator](https://better.com/how-much-house-can-i-afford) to get an idea of your budget. Additionally, obtaining a pre-approval letter can provide a more accurate estimate of how much you can borrow and add leverage to your offers.

<strong>Question:</strong> What's the difference between an open house and a private tour?
<strong>Answer:</strong> An open house is an open invitation for anyone to inspect a home during set hours, usually with a listing agent present to answer questions. A private tour is arranged with the listing agent or your real estate agent, allowing for a more detailed inspection and questions.

<strong>Question:</strong> How do I differentiate between my "needs" and "wants" when looking for a home?
<strong>Answer:</strong> Your "needs" are essential features that accommodate your family, work, or lifestyle, such as the number of bedrooms. "Wants" are nice-to-have features like new appliances or a fireplace, which you could live without. Consider whether a feature is easy and affordable to change after moving in to help differentiate between the two.

<strong>Question:</strong> Why is location important when choosing a home?
<strong>Answer:</strong> [Location](https://better.com/content/how-to-choose-the-right-neighborhood-when-buying-a-house) can significantly impact a home's appreciation and your comfort living there. Consider your lifestyle preferences, school districts, property taxes, and the neighborhood's overall livability. Future zoning and infrastructure changes can also affect the area's desirability.

<strong>Question:</strong> What should I pay attention to during a home tour?
<strong>Answer:</strong> Look for signs of structural damage, water damage, or mold, as these can be costly to fix. Assess the storage space, parking situation, and don't get too caught up in minor cosmetic details that can be changed easily. Focus on the home's overall condition and utility systems.

<strong>Question:</strong> Can I update my list of "needs" and "wants" after touring homes?
<strong>Answer:</strong> Absolutely. Touring homes is a learning experience, and you may discover new preferences or deal-breakers. Don't hesitate to update your list as you gain more insight into what you're looking for in a home.

<strong>Question:</strong> What steps should I take after finding a home I'm interested in?
<strong>Answer:</strong> Review your wants and needs list and consider the home's affordability, including additional costs like homeowners association fees and taxes. Walk the area at different times to gauge traffic and noise, and talk to potential neighbors. Consult with your real estate agent about the market and submitting a competitive offer.

<strong>Question:</strong> How can I ensure my offer stands out in a competitive market?
<strong>Answer:</strong> A verified approval letter can make your offer more attractive. Discuss with your real estate agent about the competition and how recent sales of comparable homes may influence your offer. Your agent can guide you in [crafting a competitive offer](https://better.com/content/how-to-make-an-offer-on-a-home) that aligns with market conditions.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get pre-approved</a>  
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Touring homes is an exciting part of the home purchase journey. Here’s a guide to help you tick all the (not-so-obvious) boxes to find your dream home.

What to Look for When Touring a Home

Blog post image for What to look for when touring a home

What to look for when touring a home

![Second home vs Investment Property](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F1af699dbb3d04c589790f3da308c47e2)

 ## What You’ll Learn

<p class="learnfont">A second home is a property you buy to use primarily as a vacation space for part of the year.</p>

<p class="learnfont">An investment property is a home you buy when you want to earn rental income, and not use the property yourself.</p>

  <p class="learnfont">Mortgage requirements and tax treatments differ for second homes and investment properties, so you’ll need to decide how you plan to use the home in advance.</p>

  </div>
  <br><br>

Pursuing a real estate investment can be an exciting venture, even if this isn’t your first time going through the paces. But if you intend to get a mortgage, you’ll need to decide exactly how you’ll use the home — as a personal vacation spot or to generate income from rentals.

Second homes and investment properties each have home loan and tax requirements. So, here’s what you should know if you’re trying to decide which [property type](https://better.com/content/primary-residence-second-home-or-investment-property-whats-the-difference/) may be best for your goals. 

## What is considered a second home?
A [second home](https://better.com/content/buying-a-second-home/) is typically thought of as a vacation home, or one you intend to use on a part-time basis. A second home must meet the following criteria to qualify for a second home loan:

The property must be suitable for year-round occupancy, even if you only intend to use it for part of the year.

&#8226; The home must be a single-unit dwelling.
&#8226; The property typically must be located at least 50 miles from your primary residence.
&#8226; You must have exclusive control over the property, without any timeshare or long-term rental agreements.
&#8226; The home may not be under the control of a property management company.


## What is considered an investment property?
An [investment property](https://better.com/content/investment-property-loans-5-things/) is also known as a rental property. Rather than occupying the home yourself, an investment property should be leased to tenants to generate rental income. Here are the requirements for investment property loan eligibility:

&#8226; The property cannot be owner-occupied.
&#8226; The home can have more than one unit, with up to four units allowed.
&#8226; You can rent out the property.
&#8226; The property can be located within 50 miles of your primary residence.
&#8226; A property management company can manage the home.


<br> 

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=second-home-vs-investment-property">Get started with Better Mortgage</a>  
 </div>

 ## Tax implications for a second home vs. investment property
When it comes to taxes, second homes are treated similarly to your main home or [primary residence](https://better.com/content/primary-residence-second-home-or-investment-property-whats-the-difference/). You’ll typically be allowed to write off mortgage interest up to the [$750,000 limit](https://turbotax.intuit.com/tax-tips/home-ownership/buying-a-second-home-tax-tips-for-homeowners/L5Mzc5URo "external"). However, if you have multiple properties, you can only deduct up to $750,000 in mortgage interest between them. The limit is not per property. Instead, it is a total deduction amount.

On the other hand, investment properties may allow for more freedom regarding [eligible deductions](https://www.bankrate.com/mortgages/second-home-vs-investment-property/ "external"). Owners may deduct any amount of mortgage interest, as well as certain expenses, including:

&#8226; Property taxes
&#8226; Utilities
&#8226; Advertising costs
&#8226; Maintenance costs and supplies
&#8226; Insurance costs
&#8226; Depreciation

Because tax laws can be complex, it may be worthwhile to speak with a tax professional who can review the potential tax implications of either type of property. You may also wish to review [tips from the IRS]( https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping) on rental real estate income, deductions, and recordkeeping.

## What to know before buying a home as an investment
Any investment deserves thorough consideration, and real estate is no different. Before jumping in, you’ll want to look at how often you intend to use or rent the property and whether an additional mortgage fits into your budget. Both property types will also require expenses for upkeep and maintenance that should be factored into your decision.

## Is buying a second home a good investment?
[Buying a second home](https://better.com/content/buying-a-second-home/) can potentially be a good investment as you may gain [home equity](https://better.com/content/home-equity-vs-refinance) if the home's value increases over time. You may also be able to rent out the property when you’re not using it. However, rentals are limited to a maximum of 180 days per year. 

Keep in mind that projected rental income cannot be used to help you qualify for a second home loan. So you’ll want to confirm you’ll be eligible given your current income and financial situation. 

To qualify you'll need:

&#8226; A good-to-excellent credit score
&#8226; A down payment of at least 10%
&#8226; Enough money in liquid savings to cover the mortgage for a few months if need be.

## Investment property vs second home: Which offers better rental income?
An [investment property](https://better.com/content/investment-property-loans-5-things) may be a good match if you prioritize generating money by collecting rent from tenants. You’ll also benefit from home equity, as the property’s value increases over time or due to upgrades.

However, mortgage requirements for investment homes can be more stringent and costly than other mortgage types. These home loans also usually come with the highest interest rates, credit score requirements, and liquid asset conditions of all occupancy types. This is because investment properties tend to have higher delinquency rates than other property types — which means increased risk for mortgage lenders. 

You’ll also typically need at least 10% of the purchase price for a down payment, though you may be able to use projected rental income to help you qualify for a mortgage. 

## Can I convert a second home into an investment property?
While converting a second home into an investment property may be tempting, there could be restrictions on doing so if you have a mortgage. 

Most lenders will require you to sign a document that states how you intend to use the property. Falsifying information on that document may count as mortgage fraud, which can be punishable by fines or prison time. 

Therefore, it’s best to decide how you want to use the home before applying for a mortgage.

## Explore your next property purchase with Better Mortgage
Whether you decide a second home or investment property is best for you, Better Mortgage can help you take the next step. 

With our streamlined digital process, you can be pre-approved for a mortgage in as little as 3 minutes.

<br> 

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=second-home-vs-investment-property">Get started with Better Mortgage</a>  
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Discover the nuances of buying a second home versus an investment property and which option may be best for your goals.

Second Home vs Investment Property: What's the difference?

Blog post image for Second home vs Investment Property: What's the difference?

Second home vs Investment Property: What's the difference?

![A comprehensive guide to a second home loan](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F5fd9119897cd43f988df2db8824d200b)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">Second homes, or vacation homes, must meet specific guidelines to be eligible for a second home loan.</p>

<p class="learnfont">Second home mortgage qualifications are typically more strict than for a primary residence.</p>

  <p class="learnfont">Beyond a mortgage, several alternative financing options can help you pay for your second home.</p>

  </div>
  <br><br>
<h2 style="margin-bottom:24px;">Table of contents</h2>
<ul>
    <li><a href="#1">What is a second home mortgage loan?</a></li>
    <li><a href="#2">Things to Consider When Taking Out a Mortgage Loan for a Second Home</a></li>
    <li><a href="#3">Second home loan mortgage requirements</a></li>
    <li><a href="#4">Alternative ways to finance a second home</a></li>
    <ol style="margin-left:24px">
        <li><a href="#5">Home equity line of credit (HELOC)</a></li>
        <li><a href="#6">Cash-out refinance</a></li>
    </ol>
    <li><a href="#7">How to Buy a Second Home With a Mortgage: The process</a></li>
    <ol style="margin-left:24px">
        <li><a href="#8">Get pre-approved for a second home mortgage loan</a></li>
        <li><a href="#9">Work with a local agent</a></li>
        <li><a href="#10">Hunt for your new home</a></li>
        <li><a href="#11">Make an offer</a></li>
        <li><a href="#12">Close on your mortgage</a></li>
    </ol>
    <li><a href="#13">Get a second home loan with Better Mortgage</a></li>
</ul>
<br>

If there’s a special place in your heart you frequently visit, then you may be ready to ditch hotel rooms and rentals and buy a more permanent place of your own. Second homes can serve a variety of purposes, from vacation spots to practical dwellings in prime locations.

Here’s how second homes differ from other property types, how second mortgages work, and what you can expect from the buying process once you’re ready to get started.

<div id="1"><br></div>

## What is a second home mortgage loan?
A second home loan is a mortgage used to finance a secondary or vacation residence. 

Second home loans differ from those used for [primary residences and investment properties](https://better.com/content/primary-residence-second-home-or-investment-property-whats-the-difference/) because each property type represents a different level of risk for lenders. For instance, because you’re not dependent on your second home as a primary place to live, lenders assume you may be more likely to stop making mortgage payments if you fall on hard times. 

For a property to be [considered a second home](https://better.com/content/buying-a-second-home/) and deemed eligible for a second home loan, it must meet the following guidelines:

- The home must be a single-unit dwelling.
- The property must be suitable for year-round occupancy, even if you only intend to use it for part of the year.
- You’re required to have exclusive use of the property, meaning no long-term leases or timeshare scenarios.
- The home may not be under the control of a property management company.
- In most cases, it must be located a certain distance from your primary residence.

You may be able to rent out a second home when you’re not using the property, but rentals are typically restricted to 180 days per year. And any projected rental income cannot be considered for mortgage qualifying purposes.

[Unlike second property mortgages, investment property mortgages’](https://better.com/content/second-home-vs-investment-property) allow for even longer rental terms (year-round), but also come with the toughest qualifying guidelines because they tend to have higher delinquency rates than other occupancy types. Lenders will typically expect that you are truly using the property as a second home and not a full investment property that allows for tenancies longer than 180 days.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started with Better Mortgage</a>  
 </div>

<div id="2"><br></div> 

## Things to consider when financing a second home
While [purchasing a second home](https://better.com/content/buying-a-second-home/) is an exciting adventure, financing requirements can be a bit more strict than those for a primary mortgage. Second mortgages also tend to come with higher interest rates because of the increased risk they represent to lenders.

<div id="3"><br></div>

## Second home loan mortgage requirements

Here’s what your typical mortgage requirements [qualify for a second home loan](https://better.com/content/buying-a-second-home/) are:

- At least 20% of the purchase price as a down payment
- A lower debt-to-income ratio, usually less than 43%
- A good-to-excellent credit score
- Proof of enough cash reserves to cover several months’ worth of mortgage payments

<div id="4"><br></div>

## Alternative ways to finance a second home
If you think it will be a challenge to get a second mortgage based on the requirements above, or you’d prefer a different way to pay, there are other alternatives to consider. These options will allow you to leverage the equity you’ve built up in your primary residence, and use it toward your second home.

<div id="5"><br></div>

### Home equity line of credit (HELOC)
A [home equity line of credit](https://better.com/content/when-and-why-would-i-need-second-mortgage) allows you to borrow against the equity from your primary home on an as-needed basis and pay it off with interest over time. It works similarly to a credit card where you can borrow up to a specified credit limit, and the amount gets replenished as you make payments. 

Keep in mind that because HELOCs are secured by your primary residence, your lender may be able to foreclose on your home if you stop making payments.

<div id="6"><br></div>

### Cash-out refinance
A [cash-out refinance](https://better.com/content/guide-to-cash-out-refinance) is similar to a traditional refinance in that you replace your current primary mortgage with a brand new one. However, with a cash-out refi, you tap into your current home’s equity to free up extra cash for your new second home. 

Of course, this will add to your existing mortgage balance by increasing the amount you owe, which may result in a higher mortgage payment. Also, when you refinance, you typically reset the payoff clock on your mortgage, especially if you’re getting a new 30-year home loan, so going this route for a second home may take you longer to pay off your first mortgage. 

<div id="7"><br></div>

## How to buy a second home with a mortgage: The process
If you decide to move forward with a second home loan, then here are the steps you can expect from the homebuying and mortgage process. 

<div id="8"><br></div>

### Get pre-approved for a second home mortgage loan
Before you start shopping around and going to open houses, you’ll want to confirm [how much you can afford](https://better.com/how-much-home-can-i-afford) with Better Mortgage to spend. A [pre-approval](https://better.com/content/how-to-get-pre-approved-for-a-mortgage) can give you an idea of the amount you’ll be approved to borrow. 

Not all lenders offer second home financing. But luckily, Better Mortgage does! With our online process, you can get pre-approved in as little as 3 minutes, without affecting your credit score. 

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started with Better Mortgage</a>  
 </div>

<div id="9"><br></div>

### Work with a local agent
Once you’ve been pre-approved, you’re ready to connect with a [Better Real Estate Agent](https://better.com/with/find-an-agent). Because you’ll likely be buying a second home in a different area from where you currently live, it’s a good idea to interview a few local agents. They should be able to answer your questions about various neighborhoods, traffic patterns, and local events and help guide you through your search.

<div id="10"><br></div>

### Hunt for your new home
After connecting with a [Better Real Estate Agent](https://better.com/with/find-an-agent), it’s time for the fun part: shopping for homes. Think about taking a trip to the area where you want to buy and asking your agent to set up multiple showings to make the best use of your time.

<div id="11"><br></div>

### Make an offer
Once you’ve found the perfect second home, it’s time to [make an offer](https://better.com/content/how-to-make-an-offer-on-a-home). You’ll work with your agent to decide how much to offer, draw up the paperwork, and negotiate with the seller. If your offer is accepted, you’ll be ready to move on to the last step in the process.

<div id="12"><br></div>

### Close on your mortgage
[Most homes close within 1-2 months](https://www.forbes.com/advisor/mortgages/how-long-does-it-take-to-close-on-a-house/ "external") of when the seller first accepted the offer. During this time, you’ll have any requested inspections, receive an appraisal report, complete your mortgage documentation, and attend a final walk-through.

Then, you’ll be ready to head to closing where you and the seller will sign paperwork and your lender will send over the necessary funds. At the end, you’ll be handed the keys and officially be the proud owner of a second home and you can close 10 days faster than the industry average with Better Mortgage.

<div id="13"><br></div>

## Get a second home loan with Better Mortgage
Buying a second home is an exciting opportunity. But before you dive in, it helps to know exactly how much second home you can afford. 

Our pre-approval process takes as little as 3 minutes and can give you the confidence to make an offer on your second home.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/start">Get started with Better Mortgage</a>  
 </div>

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Thinking of buying a vacation home? Find out the requirements the property must meet to be eligible for a second mortgage. 

A Comprehensive Guide to a Second Home Loan

Blog post image for A comprehensive guide to a second home loan

A comprehensive guide to a second home loan

![Purple Image with an Ellipse with the Front of a Condo Within and a Half Golden Circle to the Right](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F4e50b45919444ef781f46d18a8f88d08)

# Discover how FHA condo approvals work, including loans and eligibility criteria. 

Dive into our blog for all the details.

## What is FHA condo approval and why is it necessary?

FHA condo approval is a certification process that allows condominium projects to become eligible for FHA-insured loans. It ensures that the condo project meets certain standards and requirements, providing assurance to lenders and buyers that the property is financially stable and a good investment.

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">The kinds of condos you can buy with an FHA loan</p>

<p class="learnfont">How to qualify for an FHA loan</p>

  <p class="learnfont">What to do if the condo you want isn’t FHA approved</p>

  </div>
  <br><br>

If mowing the lawn, cleaning the gutters, or washing windows isn’t your idea of a fun weekend activity, a condo may be the right home for you. Condos typically cost less than single-family homes, you’re only responsible for maintaining the interior, and they’re often located close to amenities. In fact, larger condominium neighborhoods may even have shared amenities such as swimming pools, pet parks, and even golf courses. If you’re a homebuyer with a smaller down payment, lower credit score, or higher DTI, an FHA loan could be the way to make homeownership happen. Additionally, condo owners pay condominium association dues for the upkeep of shared common areas, such as garages, pools, outside hallways, gyms, and clubhouses.
Before you make the big decision to let a specific condo steal your heart, it’s important to know about the FHA condo approval process. Not all condos are available to homebuyers with an FHA loan because FHA loans are insured by the Federal Housing Administration (FHA) and there are strict payment requirements for the kinds of condos the FHA will approve. If a condo doesn’t make the FHA’s list, you won’t be able to buy it with an FHA loan. So let’s dig into which condos are FHA approved, how to get an FHA loan, and what to do if the condo you want isn’t on the FHA’s list.

## What is an FHA approved condo?

For a condo to be approved for an FHA loan it must be on the FHA’s list of approved condominium projects. To make the FHA’s approved condo list a condo must meet 3 basic requirements:

- It must be **primarily residential**.
- It must contain at least **two dwelling units**.
- It must be either **detached, semi-detached, a row house, a walk-up, mid-rise, high-rise**, including those with or without an elevator, or manufactured housing.

[In 2019, there were 150,000 condominium projects across the country, but only 6.5% of them qualified for FHA financing](https://www.spglobal.com/marketintelligence/en/news-insights/trending/_rm_ulplkwzhn1akd2gm8a2). Since then, new rules have been introduced to enable individual condo units to be eligible for FHA loans even if the full condo development isn’t approved. This is to increase the number of FHA approved units by up to 70,000 new units per year. Under the new rules, the FHA loan approval process evaluates the entire condominium project, not just the individual unit. Single condos within projects that are not approved can now be approved through a single-unit approval process sometimes called “spot approval.” The FHA loosened its eligibility requirements for condo owners in 2019, allowing individual condo units, including manufactured homes, to be eligible for FHA loans even if the full development isn't approved. This change, known as "spot approval," has opened up more opportunities for condo buyers to secure FHA financing.

Despite the new guidelines, “Condo hotels,” timeshares, houseboat projects, or condos that feature more than one dwelling in a single condominium unit are ineligible for homebuyers who need FHA financing.

## How to find out if a condo is FHA approved

The U.S. Department of Housing and Urban Development (HUD) maintains [this list](https://entp.hud.gov/idapp/html/condlook.cfm) of condominiums that are approved for an FHA condo loan.

To search for FHA approved condos you’ll need the state, county, and maybe the zip code (if you’d like to narrow your search to a more specific area). The list includes condominium projects that are approved, expired, rejected, or withdrawn, so select ‘approved’ status to make sure the condo you’re interested in can be financed with an FHA loan.

If a condo has already caught your eye, all you need is the condo name and state to see if it’s on the list. Alternatively, you could work with an experienced [real estate agent](https://better.com/realestate) who’s familiar with both FHA approved condos and the neighborhood where you’re hoping to buy.

## How a property gets approved for an FHA condo loan

As a homebuyer, this is more of a nice-to-know because no matter how much you want to buy a condo that’s not on the FHA approved condo list, it’s not your responsibility to get the condo FHA approved. The condo developer or their agent is typically responsible for getting their condominium project FHA approved. If the condo has been around for a while, the condo association or their management company submits the condo approval package. Additionally, it is important to note that the condo’s homeowners association (HOA) must have at least 10% of its HOA budget in a cash reserve to meet FHA requirements for commercial use.

If you want to learn about what goes into a condo approval package, or would simply enjoy some “light bedtime reading,” this 95-page [Condominium Project Approval and Processing Guide](https://www.hud.gov/sites/documents/11-22MLGUIDE.PDF) covers all the documentation and requirements the FHA needs to approve a condominium project.

Here are the highlights:

- The condominium project must have adequate insurance coverage
- Commercial space must not be more than 25%, up to a maximum of 55%, 35% of the project’s total floor space, depending on the project. 
- No more than 10% of the total units can be owned by one investor
- The project’s area structures, as well as the housing units themselves, must be complete
- Bylaws and covenants of the condominium must not violate the [Fair Housing Act](https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview)
- Condos, aka ‘condotels’, that double as a resort-type property are prohibited
- The project must be located a reasonable distance away from transportation infrastructure
- At least 50% of the units must be owner-occupied
- No more than 15% of units in the property can be behind on their homeowners association dues
- The project must have adequate capital reserves

As you can imagine, it can be time-consuming and often costly to get a condo project FHA approved and that’s why most condominium projects forgo FHA approval. Instead, they’re built in the hope that buyers use a [conventional loan](https://better.com/content/conventional-loan-requirements/) to finance their condo purchase.

## FHA condo requirements

There isn’t a specific FHA mortgage condo loan per se. You’ll need to be approved for an FHA mortgage loan and find a condo to buy on the FHA approved condo list. FHA mortgage loans have specific requirements for the types of residences you can buy, so you’ll be pleased to know that if you want an FHA-approved condo to be your primary residence, the property will automatically meet FHA mortgage loan requirements. However, it's important to note that investment properties and vacation homes are not eligible for FHA loans.

To be eligible for an FHA home loan you’ll typically need (keep in mind some requirements may vary by lender):

__A.__ A credit score within the eligibility range based on your down payment amount or even your lender’s specific requirements:

  1. If your down payment is 3.5%–9.9%, you’ll need a credit score above 580

  2. If your down payment is 10%, a credit score between 500–579 will suffice

  3. If applying through Better Mortgage, credit score of at least 580 is required to qualify

__B.__ A [debt-to-income (DTI)](https://better.com/content/3-most-important-numbers-mortgage-application/) ratio of 43% or less

__C.__ Evidence of steady income and proof of employment

__D.__ To make [mortgage insurance premium](https://better.com/faq/home-purchase-loan-costs/what-is-mortgage-insurance-premium-mip) (MIP) payments, in most cases for the life of the loan in most, plus a one-time upfront MIP payment equal to 1.75% of the loan amount


MIP is similar to [private mortgage insurance (PMI)](https://better.com/content/what-is-pmi-or-private-mortgage-insurance/), which borrowers with [conventional mortgages](https://better.com/content/conventional-loan-requirements/) need to pay if their down payment was less than 20%. Conventional mortgage borrowers will automatically stop paying PMI once they’ve reached 22% equity in their home (when they have 20% equity in their home, they can request an end to PMI). MIP, on the other hand, must be paid for the life of most loans. If your down payment is more than 10%, however, you can ask for MIP to end after 11 years of payments.

FHA [home loan requirements](https://better.com/content/conventional-loan-requirements) also allow borrowers to make down payments using gifted money from family or a friend. In this case, a [gift letter](https://better.com/content/how-to-use-a-gift-letter-for-your-mortgage/) will need to accompany the mortgage application to prove that the gift does not need to be paid back.

A range of [mortgage lenders](https://better.com/mortgage) offer FHA home loans and their eligibility requirements may differ. At Better Mortgage, for example, you’ll need a DTI ratio of 50% and a minimum credit score of 580 regardless of your down payment amount.*

## If the condo you want isn't FHA approved, you have options

While there’s no harm in asking if the condo developer or condo association can submit their condo for FHA approval, given that it can take from two weeks to over three months to get an FHA condo approval, it’s unlikely you’ll get a satisfactory result that works with your homebuying timeline.

If you know you’ll need to get an FHA home loan to buy a home, you’ll need to keep looking until you find a condo on the FHA approved condos list or consider buying a single-family home instead.
If an FHA loan does not sound right for you, you’re in luck! You may be eligible for a conventional loan with Better Mortgage. In fact, qualifying first-time homebuyers can get a conventional mortgage with a down payment as low as 3%. As an added bonus, you’ll no longer be limited to buying a condo that’s approved by the FHA. Additionally, if you’re eligible for the Fannie Mae HomeReady program, you may be able to snag a condo with a 3% down payment. However, to qualify for this program, you'll need at least a 620 credit score and income limits will apply.

In as little as 3 minutes, Better Mortgage can show you which types of loans you may qualify for, the homebuying budget you’ll have to work with, and they will match you with a loan consultant to walk you through your options to help you make the best financial decision for you and your family.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=fha-condo-approval">Get started</a>  
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 <p class="legal">*Eligibility is subject to change.</p>

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Learn about FHA condo approval requirements for buyers, including eligibility rules, documentation needed, and how to find FHA-approved condominium projects.

Understanding FHA condo approval requirements for buyers

Blog post image for Understanding the FHA condo approval requirements for buyers

Understanding the FHA condo approval requirements for buyers

[![ Quote: RSUs Have Real Value, and We Think They Should Count for Something When We Determine How Much You Can Borrow.](https://media.better.com/content/prod/2017/07/rsu-blogpost-graphic.png)](https://better.com/preapprovals/purchase)

<p>At Better Mortgage, we work with customers who work at places like Amazon, Google, Facebook, Oracle, or other publicly traded technology companies. Many of these employees are compensated in part through restricted stock units, or RSUs. In a nutshell, these are shares of stock that “vest” over time – the longer an employee stays with the company, the more stocks they will actually own.</p>

<p>Even though more and more people today are compensated with RSUs, there are still no standard guidelines for how lenders should account for them when people are applying for a mortgage. Because of that, most mortgage lenders won’t count RSUs as part of your income at all, which can have a significant impact on your debt-to-income ratio and the size of the loan you’re able to get. </p>

<p>We started Better Mortgage because we realized much of the mortgage industry was stuck in the past. Taking into account how people today are compensated is part of our mission to provide financially sound mortgage <a href="https://better.com/content/5-percent-down-payment/">options</a> for all Americans. </p>

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/07/blog_RSU_quote.png"></a></p>

<h2 id="ourapproachtorsus">Our approach to RSUs</h2>

<p>RSUs have real value, and we think they should count for something when we determine how much you can borrow. It’s also our goal to give you the best possible mortgage – one that’s <a href="https://better.com/content/so-youre-wondering-how-much-house-can-you-actually-afford/">affordable</a> today and in the future. That means in order to consider your RSUs as part of your income, we’ll need clear documentation from you, and we’ll need to be conservative when calculating the value of your RSUs. </p>

<p><br></p>

<br>
 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapprovals/purchase">Get pre-approved</a>  
 </div>
<br>

<p><br></p>

<h2 id="documentswellneedfromyou">Documents we’ll need from you</h2>

<p>While we’d love to take our customers at their word, we need proof of your financial details to approve your loan, including things like tax returns, pay stubs, and bank statements. </p>

<p>When it comes to RSUs, we’ll also need:</p>

<ul>
<li><p><strong>Written verification of employment (WVOE)</strong> from your employer that includes: your name, company name, and information about your RSU earnings over the previous two years</p></li>
<li><p><strong>An RSU agreement/vesting schedule</strong> from your employer that includes: your name, company name, and your vesting schedule for the next three years</p></li>
</ul>

<p>Unsure about getting the right documentation? The HR department at your company should be able to help you.</p>

<h2 id="howwecalculatethevalueofyourrsus">How we calculate the value of your RSUs</h2>

<p>Our in-house underwriters (the people who review and evaluate your loan application) are required to take a conservative approach when calculating the value of your RSUs. We do this to avoid qualifying you with an over-inflated estimate of your income or putting you at risk of not being able to afford your payments if your income ends up being less than we anticipated. </p>

<p>When we calculate your RSU income we evaluate the following factors:</p>

<ul>
<li><p>The amount you've earned from RSUs over the past two years</p></li>
<li><p>The number of RSUs you are due to vest in over the next three years. We're obligated to take a worst case scenario approach and consider the fewest number of RSUs that you’ll vest in any of the next three calendar years.</p></li>
<li><p>The current and historical stock price of your employer over the past two years</p></li>
</ul>

<h2 id="readytogetamortgageforthe21stcentury">Ready to get a mortgage for the 21st century?</h2>

<p>With our online Verified Pre-Approval process, our underwriters can review your financial information (including your RSU compensation) and determine exactly how much you’re qualified to borrow. </p>

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Most mortgage lenders won’t count RSU compensation as part of your income, but Better Mortgage will. Here’s how our underwriters handle RSUs.

Using RSUs in Mortgage Underwriting

Blog post image for Using RSUs in Mortgage Underwriting

<a href="https://better.com/content/vishal-garg-better-ceo/">*Vishal Garg,*</a> *Better Mortgage [Founder and CEO](https://www.forbes.com/sites/dianatsai/2021/10/20/how-bettercom-quietly-became-a-77b-unicorn-personal-insights-from-founder-vishal-garg/?sh=5a1228ab40d0), demystifies the low down payment mortgage.*

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![3-5% down](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F05c282c87bf744a39e0d801413078569)

Becoming a homeowner is a huge milestone in many people’s lives, but it can be hard to know when you’re ready. At Better Mortgage, we've found that many people don't take the next step because of how daunting it can seem to save up for a large down payment.

We want to help you see yourself as a homebuyer by giving you accurate, transparent information about your financing options. In addition to eliminating unfair <a href="https://better.com/content/5-reasons-why-loan-officer-commission-is-bulls-t/">commission structures</a>, lender fees, and <a href="https://better.com/content/dont-take-the-bait-heres-the-reality-of-refi-rates/">bait-and-switch</a> quotes, we work with government-backed investors like Fannie Mae and other reputable banks to offer a variety of loan types, to help people chose the best financing option for them.

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## Considering a 3-5% down payment

For example, we can offer qualified borrowers financing options with as little as 3% down. Now, I know what you’re thinking. That sounds risky. But it’s not – anymore. Before the housing crisis, these types of loans were often offered to people who were at a high risk of defaulting, such as people with extremely high <a href="https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/">debt-to-income ratios</a>. Since then, the mortgage industry has been regulated to protect people from those kinds of predatory loans.

For borrowers with great credit and a steady income, a 3-5% down loan can be a financially sound option, allowing you to start investing and building equity sooner.

## The difference between what you can afford and the size of your down payment

Essentially, you pay for your home with:

- An initial large payment (your down payment)</li>
- Ongoing installments, with interest (your monthly mortgage payment)</li>

Many potential homeowners focus on the first part, which is their down payment. But lenders are also looking at your *future* ability to pay, which is indicated by a steady income and a great <a href="https://better.com/content/how-your-credit-score-affects-your-mortgage/">credit score</a>.

## Let’s look at an example

Let’s say you have high student loan debt, but a stable career with steady income (and the tax returns and pay stubs to prove it). And you live in a city where your monthly rent is high – even higher than what a monthly mortgage payment might be.

In this instance, you may not have a 20% down payment saved up, since most of your income has gone towards rent and paying off student loans. But your income profile, and the fact that you’re already making high rent payments, can be a signal to lenders that you’ll be able to make consistent mortgage payments.

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#### The bigger picture: backed by data

An analysis of historical loan data by Laurie Goodman, Jun Zhu, and Taz George at the Urban Institute shows why government-backed investors like Fannie Mae see relatively little risk in qualifying mortgage loans with down payments as low as 3-5%:

Data shows that credit is a stronger indicator of default risk than down payment size. The percentage of defaults of 5-10% down loans versus 3-5% down is very similar.*

“Of loans that originated in 2011 with a down payment between 3-5 percent, only 0.4 percent of borrowers have defaulted. For loans with slightly larger down payments – between 5-10 percent – the default rate was exactly the same. The story is similar for loans made in 2012, with 0.2 percent in the 3-5 percent down-payment group defaulting, versus 0.1 percent of loans in the 5-10 percent down-payment group.” – Urban Institute

<p><a href="https://better.com/preapprovals/purchase"><img src="https://media.better.com/content/prod/2017/07/default_rates_FICO.jpg"></a></p>

What does this mean for Americans with goals of homeownership? For a couple with $25,000 saved up for a down payment, it could be the difference between being able to put 10% down for a 1-bedroom home that costs $250,000, versus putting 5% down and getting for a 2-bedroom home for $500,000.

## The bottom line

We think if you’re considering homeownership, you shouldn’t have to keep renting just to save up for a large down payment. Government-backed investors like Fannie Mae agree. They want to help more people build equity through homeownership, and they’re doing so by backing loans with as low as even a 3% down payment, for borrowers who fit the profile.

If you’re considering buying a home, we’re here to help you understand your options. Take a few minutes today to explore whether homeownership is a possibility with our <a href="https://better.com/preapprovals/purchase">3-minute basic pre-approval</a>. There is no fee, no obligation, and researching your financial options will not affect your credit score. You can also talk through your options by <a href="https://better.com/schedule-call?loanType=purchase&amp;TRACKINGLOCATION=5pdp&amp;TRACKINGBRANDING=purchase">scheduling a free call</a> with one of our non-commissioned Mortgage Experts.

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<p class="legal"><a href="http://www.urban.org/urban-wire/why-government-sponsored-enterprises-support-low-down-payment-loans-again-no-big-deal">*Why the Government Sponsored Enterprises' support of low-down payment loans again is no big deal</a></p>

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Considering a 5% down payment for your mortgage? We're here to help demystify the low down payment mortgage.

When a 5% down payment isn't a risk

Blog post image for When a 3-5% down payment isn't a risk

When a 3-5% down payment isn't a risk

<p><em>The Loan Estimate is intended to provide a clear and concise summary of the terms and costs associated with any loan. Here’s how to read it with confidence.</em></p>

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<p><br><br> <br />
The Loan Estimate (LE) provides a clear and concise summary of the terms of your loan to help you understand the features, costs and risks associated with your mortgage as required by the Consumer Finance Protection Bureau (CFPB). Before moving forward with any lender, you should be sure to compare and understand your Loan Estimate.  </p>

<h2 id="yourinitialle">Your initial LE</h2>

<p>This is page 2 of sample LE in the CFPB-approved format. Make sure your lender provides an estimate in this format. Anything that looks different is not an official Loan Estimate.</p>

<p><a href="https://better.com/start"><img src="https://media.better.com/content/prod/2016/12/LE-page-2-no-annotation.png"></a> <br />
<em><p style="font-size:1.4rem;">Page 2 of the LE details your loan costs</p></em></p>

<h2 id="tipsforcomparinglesfromdifferentlenders">Tips for comparing LEs from different lenders</h2>

<p>Here are a few things to look out for: </p>

<h4 id="1thirdpartyfeesappearingononelendersleandnotanothers">1. Third-party fees appearing on one lender’s LE and not another’s</h4>

<p>You should raise this with your Mortgage Expert. While the fee amount can vary, the types of third-party fees associated with a loan are fairly constant. One lender may be missing something. </p>

<h4 id="2differencesinloanamountforarefinance">2. Differences in loan amount for a refinance</h4>

<p>A lender may increase your loan amount slightly to create a “<a href="https://better.com/content/no-cost-mortgage/">no closing cost loan</a>”. Borrowing a little more than the payoff on your current loan is one way to offset fees at the closing table, but this is increasing your debt to pay for your closing costs; it does not make them go away.  For an apples-to-apples comparison across lenders, you should get LEs with identical loan amounts.</p>

<h4 id="3promisesofcreditsafterclosethatdonotappearonthele">3. Promises of credits after close that do not appear on the LE</h4>

<p>This is a major red flag. The purpose of the LE is to create transparency and accountability. You lose both by transacting outside of the standard disclosure.</p>

<h4 id="4increasingcostsduringachangeincircumstance">4. Increasing costs during a change in circumstance</h4>

<p>Some lenders may advertise attractive rates and fees for one product, then switch into something less competitive (<a href="https://better.com/content/loan-estimate-101/">bait-and-switch</a>). You should ask about any additional fee and look at the relative competitiveness of the new product by continuing to shop before locking.</p>

<h2 id="abetterway">A Better way</h2>

<p>Better Mortgage is committed to a transparent and efficient mortgage process. Contact us by email (<a href="mailto:hello@better.com">hello@better.com</a>), phone (<a href="tel:888-501-3186">888-501-3186</a>), or chat with us via <a href="https://better.com/">Better.com</a> with any questions about your LE. We are happy to walk you through competing offers and answer any questions. No pressure, no sales — just a fast, easy and transparent process.</p>

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Your loan estimate is a summary of the terms and costs associated with your loan. Learn how to read and understand it with confidence.

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