California loan guide
Second Home Loans in California
A second home loan is a conventional mortgage on a one-unit home you occupy for part of the year, under your exclusive control, that is not rented out as a business. Fannie Mae caps the loan at 90% of the value, requires two months of reserves, and sets no minimum distance from your main home.
In this guide
Key numbers
| Item | Figure | Source |
|---|---|---|
| Maximum loan-to-value, purchase or limited cash-out refinance | 90% | Fannie Mae Eligibility Matrix, December 10, 2025 |
| Maximum loan-to-value, cash-out refinance | 75% | Fannie Mae Eligibility Matrix, December 10, 2025 |
| Reserves, automated underwriting (DU) | 2 months of the new home's PITIA | Fannie Mae Selling Guide B3-4.1-01 |
| Extra reserves for other financed properties | 2% of their unpaid balances (1–4 financed properties), 4% (5–6), 6% (7–10) | Fannie Mae Selling Guide B3-4.1-01 |
| Seller-paid costs allowed | 3% of price above 90% LTV; 6% at 75.01–90%; 9% at 75% or less | Fannie Mae Selling Guide B3-4.1-02 |
| Minimum distance from your main home | None in Fannie Mae's rules | Fannie Mae Selling Guide B2-1.1-01 |
Figures checked October 14, 2026.
Who it fits, and who should look elsewhere
Fits: you will use the home yourself for part of every year; it is a one-unit home suited to year-round occupancy; you can carry two homes at once, including two months of reserves on the new loan after closing; and any rent you collect is incidental and is not needed to qualify.
Look elsewhere: the home will be rented full-time or handed to a management company that controls when you can use it — that is an investment property, with a 75–85% loan-to-value cap and six months of reserves instead. A two- to four-unit building can never be a second home under Fannie Mae's rules, whatever you call it. If you need the rent to qualify, stop here: rental income from a second home cannot be used to qualify, and rental income from your main home generally cannot either.
Requirements
Program rules (Fannie Mae)
- The home must be occupied by you for some portion of the year, restricted to one unit, and suitable for year-round occupancy.
- You must have exclusive control over the property. It cannot be a timeshare, cannot sit in a rental pool, and cannot be subject to an agreement giving a management firm control over occupancy.
- The loan must be underwritten in Desktop Underwriter and receive an Approve/Eligible recommendation.
- A price adjustment (LLPA) applies to certain second home loans, on top of any other adjustments.
- If the lender spots rental income from the property, the loan can still be delivered as a second home as long as that income is not used to qualify and every other second home rule is met.
Lender overlays (not Fannie Mae rules)
- Distance tests. Some lenders ask for a set distance — 50 miles is a number repeated all over the internet — between your main home and the second home. That is an individual lender's overlay. Fannie Mae's occupancy rules contain no distance figure at all.
- Credit and debt-to-income cutoffs. Individual lenders set their own floors above the agency baseline. A quoted "43% maximum" or "700 minimum score" is a lender's house rule, not an agency rule.
Real costs
- Down payment: at least 10% on a purchase at the 90% cap — $90,000 on a $900,000 home.
- Mortgage insurance: a loan above 80% of value carries mortgage insurance until the balance falls, adding a monthly cost a main-home buyer at the same price may also pay, but budgeted here on a second property.
- Price adjustments: the second-home LLPA raises the price of the loan compared with an identical main-home loan.
- Two of everything: a second insurance policy, a second property tax bill, utilities, and upkeep on a home you visit part-time. In California fire zones, the second policy can be the hardest cost to predict, and a quote should be in hand before the contingency period ends.
- Seller help is capped: at 90% LTV the seller can pay at most 6% of the price toward your closing costs and prepaids; seller money can never fund your down payment or your reserves.
California specifics
California changes the carrying cost, not the loan rules. Both homes are taxed under Proposition 13 on their own assessed values, so the new home's tax bill starts from its purchase price while your main home keeps its older, lower base. A vacation home in a high-fire-risk area may only be insurable through the California FAIR Plan or a surplus-lines carrier, at a price that changes the affordability math after the loan is approved. Run the insurance quote during escrow, not after it.
Worked example: a $900,000 home in the desert
Price: $900,000. Down payment at the 90% cap: $900,000 × 10% = $90,000. Loan: $900,000 − $90,000 = $810,000, which is 90% of the price.
Reserves: suppose the new home's monthly principal, interest, taxes, insurance and association dues (PITIA) come to $5,600. Two months of reserves = 2 × $5,600 = $11,200 that must still be in your accounts after closing, on top of the $90,000 down payment and closing costs.
If you also carry a financed rental with an unpaid balance of $300,000, the multiple-property rule adds 2% × $300,000 = $6,000, for total reserves of $11,200 + $6,000 = $17,200. Cash needed at closing is therefore at least $90,000 + closing costs, with $17,200 still sitting untouched afterward. If the seller offers to pay 7% of the price toward your costs, only 6% counts as a financing concession at 90% LTV; the extra 1% ($9,000) is treated as a sales concession and deducted from the price, which lowers the maximum loan.
How the process runs
- Pre-approval. The lender underwrites your income against both homes' payments and checks reserves after closing, not just cash to close.
- Offer and occupancy. Your purchase contract and loan application state second-home occupancy. The lender tests the property against the occupancy rules: one unit, year-round use, your exclusive control.
- Appraisal and underwriting in DU. The file must return an Approve/Eligible recommendation.
- Disclosures and closing. A second home purchase is a consumer mortgage, so you receive a Loan Estimate after applying and a Closing Disclosure before signing; a purchase loan carries no right of rescission after closing.
- After closing. Keep the reserves intact and occupy the home for part of the year, as the loan documents require.
Mistakes and downsides, with numbers
- Calling a rental a second home. If the home is really an investment property, the cap drops from 90% to 85% on a one-unit purchase — on a $900,000 home that is $45,000 more cash down — and reserves rise from two months to six.
- Counting rent you cannot use. Rent from the second home cannot help you qualify. A budget that needs $2,000 a month of rent to work is a budget short $24,000 a year in the lender's math.
- Forgetting the second tax and insurance stack. Two homes means two tax bills and two policies; in the worked example, PITIA of $5,600 a month is $67,200 a year of carrying cost before utilities and repairs.
- Letting a rental pool or management agreement take control. An agreement that gives a management firm control over occupancy disqualifies the home as a second home, however the contract is marketed.
Questions people ask
Is there a minimum distance between my main home and a second home?
No distance figure appears in Fannie Mae's second home rules. Some lenders impose their own distance test as an overlay, so ask the lender directly and get the answer in writing.
Can I rent out a second home when I am not using it?
Limited renting does not by itself disqualify the home, provided you keep exclusive control, occupy it for part of the year, and do not use the rent to qualify. A home rented full-time is an investment property.
How much do I need in reserves?
Two months of the new home's PITIA under automated underwriting, plus 2%, 4% or 6% of the unpaid balances on your other financed properties, depending on how many you have.
Can the seller pay my closing costs?
Yes, within limits: 6% of the price at 75.01–90% loan-to-value, 9% at 75% or less, and 3% above 90%. Seller money cannot fund the down payment or reserves.
Can a second home have two units?
No. Fannie Mae restricts second homes to one-unit dwellings. A duplex you do not live in is an investment property; a duplex you live in is a main home.
