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Fannie Mae & Freddie Mac – Minimum Distance Requirement for a Second Home
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Question:
When it comes to second homes, is there a minimum distance requirement from the primary residence?
Answer:
Technically, no, they don’t have distance requirements. But…. let me break it down between Fannie and Freddie below:
Freddie makes this comment in their second home guidelines from one of their many bullet points: “The Mortgage Premises must be in such a location to function reasonably as a second home,” and then they make this statement: “Freddie Mac’s determination of whether a property is a second home is conclusive.”
Breaking it down: The above statement is Freddie’s way of saying that, even if the lender has treated the home financing as a second home, Freddie could reach its own conclusion and ultimately disagree with the lender’s rationale. It is reasonable to consider that second homes are typically located far from the borrower’s primary residence, near resort or vacation areas (such as mountains, oceanfront, or desert), or in major metropolitan areas that the borrower visits regularly.
Fannie does NOT make a similar statement to Freddie Mac in its guides, as found in section B2-1.1-01.
Conclusion:
Technically, both agencies could always disagree with a lender’s decision regardless of the topic, so even though Fannie does not have similar language about their right to conclusively determine if the home is or is not a second home, it is reasonable to believe Fannie holds the same rights, even if not stated in any specific way, as Freddie does.
Again, neither has specific distance requirements, and Freddie states that the second home must be in such a location that can be interpreted at the lender level. I do believe Fannie is the better agency for originating second homes, and that opinion is framed by how their guidelines are written.
Bottom line:
Any outcome is lender discretion, and a lender can always impose their own distance requirements to help minimize occupancy misrepresentation risks with overlays.