Dreaming about a Cape Cod retreat in Chatham but not sure how to finance it? You are not alone. Second homes follow different lending rules, and coastal factors like flood insurance and septic inspections can change your numbers quickly. In this guide, you will learn the financing options that work for Chatham buyers, what lenders expect, the local factors that matter on Cape Cod, and a simple plan to move forward with confidence. Let’s dive in.
Second home vs. investment property
Before you choose a loan, clarify how your new place will be used. A true second home is for your personal use for parts of the year, not your primary residence. An investment property is purchased to produce rental income. Lenders underwrite these very differently, which affects your rate, minimum down payment, and required reserves.
If you plan to rent the home periodically, discuss your plans with your lender up front. Many lenders allow a second home classification if you intend to occupy it and limit rental nights. Others may classify the property as an investment if short stays or substantial rental income are part of the plan. Expect to sign an occupancy affidavit stating your intent to use the property personally for part of the year.
Why this matters: second homes often require lower down payments and may allow private mortgage insurance, while investment properties typically require larger down payments, higher credit scores, and more reserves. Getting the classification right will save time and avoid surprises at underwriting.
Your financing options
Conventional conforming loans
For many Cape buyers, a conventional loan backed by Fannie Mae or Freddie Mac is the starting point. These programs allow second homes, apply standard credit and debt-to-income rules with some added conservatism, and may permit private mortgage insurance with lower down payments. For program details, review the Fannie Mae Selling Guide and the Freddie Mac Single-Family Seller/Servicer Guide.
Jumbo loans in Barnstable County
Chatham prices often exceed the county’s conforming loan limit, which pushes borrowers into jumbo territory. Jumbo loans are not sold to Fannie or Freddie, so lenders set stricter standards. Plan for a larger down payment, higher credit expectations, and stronger cash reserves. You can check current limits on the FHFA conforming loan limits page to see whether your target price point triggers a jumbo loan.
Portfolio and local bank programs
Local banks and credit unions sometimes keep loans in their portfolio. That flexibility can help with unique coastal properties, seasonal-use cottages, private wells and septic systems, or homes with nonstandard features. Portfolio lenders can be a strong fit for Chatham’s one-of-a-kind properties that do not fit national investor boxes.
Using home equity from your primary home
Many buyers tap home equity from a primary residence through a HELOC or cash-out refinance to fund part of the down payment. Your lender will factor this new debt into your overall debt-to-income ratio and may have seasoning rules for recent cash-out funds. This can be an efficient way to bridge to a second home while keeping investment accounts intact.
Piggyback second mortgages
Some buyers pair a first mortgage with a small second mortgage to reduce or avoid private mortgage insurance. Availability and pricing vary by lender and borrower profile. Your overall DTI, credit, and reserves still need to pass second-home standards.
Bridge loans
If timing is tight between selling one home and buying in Chatham, a short-term bridge loan can cover the gap. These loans usually carry higher rates and stricter approval, so weigh the cost against benefits like stronger negotiating power or avoiding a rushed sale.
Cash purchases
In a competitive coastal market, cash can simplify the process and compress timelines. It removes underwriting risk, which can matter when properties have coastal or construction quirks that trigger added lender scrutiny.
Government loans rarely apply
FHA, VA, and USDA programs generally require that you occupy the home as your primary residence, so they are not typical for second homes. For VA specifics on occupancy and eligibility, review the VA Home Loans site.
What lenders evaluate
Down payment and mortgage insurance
Second-home conventional loans commonly start around 10 percent down, depending on your profile and the lender. Investment loans usually require more. Jumbo loans often start at 20 percent down or higher. Private mortgage insurance may be available for second homes with a lower down payment, but it is often not available for investment properties.
Credit score and debt-to-income
Expect higher credit standards than you might see for a primary residence. Solid mid-600s to 700-plus are common targets, and jumbo programs often expect 700 to 740 or higher. Lenders apply more conservative debt-to-income limits for second homes and investment properties.
Cash reserves
Plan to show several months of principal, interest, taxes, and insurance in liquid reserves. Six months is a common benchmark for second homes, and investment properties can require more. Jumbo loans may add to these requirements.
Rates and pricing
Rates for second-home loans are usually higher than rates for primary residences. Investment property rates are typically higher than second-home rates. Pricing can improve with larger down payments and strong credit.
Rental income in underwriting
If you want lenders to count rent to help you qualify, be prepared to document it. Lenders often use a portion of signed long-term lease income and review tax returns for history. Short-term rental income is treated more cautiously and may not count at all. Discuss documentation with your lender early so you know what will be creditable.
Property condition and eligibility
Lenders check that the home is acceptable collateral and suitable for year-round occupancy. In coastal areas, they scrutinize access, utilities, and winterization. Properties with private wells and septic systems, or with significant deferred maintenance, can trigger extra conditions or require repairs before closing.
Chatham factors that can change your loan
Flood zones and coastal insurance
Many Chatham addresses fall within coastal flood zones. If the FEMA maps place the property in a Special Flood Hazard Area, your lender will require a flood policy. Start by checking the location on the FEMA Flood Map Service Center. Flood insurance premiums on the coast can be high, may need an elevation certificate, and are now priced under FEMA’s Risk Rating 2.0 methodology. For how rates are determined and policy basics, see FEMA’s page on flood insurance risk rating. Request quotes early since premiums affect your monthly payment and lender approval.
Title 5 septic inspection
Massachusetts requires a Title 5 inspection when a property with a septic system transfers. A failed system or required repairs can delay or derail a loan approval. Review the state’s guidance on Title 5 septic systems and plan inspection timelines into your offer strategy.
Short-term rental rules and local taxes
Chatham has active policies around short-term rentals, including licensing or registration and local occupancy taxes. These rules affect net income if you plan to rent and can influence how your lender classifies the property. Confirm the latest requirements through the Town of Chatham official website before you base a purchase on projected rental income.
Seasonal utilities and winterization
Some Cape homes are set up for seasonal use. Your lender and insurer may require evidence that the home can be safely occupied year-round or is properly winterized. Ask for utility history, winterization records, and service contracts so you know what to expect.
Property taxes and assessments
The Town of Chatham and Barnstable County levy property taxes and may have local assessments related to sewer or water. These line items flow directly into PITI and your debt-to-income calculation, so verify amounts early in your process.
Appraisals in a resort market
Unique coastal homes, limited comps, and seasonal swings can make appraisals more complex. Use a lender and appraiser with Cape Cod experience. If comps are thin, underwriters may request additional analysis or supporting comparable sales.
Taxes and insurance basics to plan for
Mortgage interest on a second home can be deductible if you itemize and the loan meets IRS rules for acquisition or home equity indebtedness within federal limits. If you plan to rent, tax treatment depends on how many days you rent versus personal use. The IRS 14-day rule can exclude limited rental income from taxation, while more frequent rentals trigger different rules for reporting expenses and depreciation. Review the IRS guidance in Publication 527 and consult a tax professional for advice tailored to your situation.
Standard homeowners policies typically exclude flood. On the Cape, you may also encounter wind or hurricane deductibles or separate windstorm coverage requirements. Ask your insurance broker for quotes early, including replacement cost details, deductibles, and any carrier requirements for storm protection.
A step-by-step game plan
1) Get financially ready
- Pull your credit reports, fix errors, and target a higher score for better pricing.
- Source and season down payment funds, and document gifts if needed.
- Build reserves, six months of PITI is a common target for second homes.
- If you will use rental income to qualify, gather leases, tax returns, or STR history.
2) Pre-approval with Cape expertise
- Speak with lenders and brokers who regularly finance Cape Cod second homes.
- Confirm whether your target price requires a jumbo loan and review the FHFA conforming loan limits.
- Discuss occupancy plans and any short-term rental intent since that can change your loan type.
3) Property due diligence
- Verify FEMA flood zone status on the FEMA Flood Map Service Center, then order flood and homeowners insurance quotes.
- Arrange the Title 5 inspection and confirm any well or water considerations using Massachusetts Title 5 guidance.
- Check Chatham short-term rental requirements on the Town of Chatham website if income is part of your plan.
4) Offer strategy and timelines
- Align contingencies and closing dates with inspection and insurance timelines.
- If you need a bridge loan or piggyback, coordinate terms before you write the offer.
- If comps are thin, build in time for appraisal review or reconsideration.
5) Plan for cash flow and risk
- Budget for seasonal vacancy, storm-related maintenance, and higher coastal insurance.
- Keep an emergency reserve for unexpected repairs or weather events.
- Think long term, whether you might convert the property to a primary residence, expand rental use, or sell in future, since tax and loan rules differ by scenario.
Local guidance when you are not local
Buying a second home in Chatham is as much about local nuance as it is about loan math. Flood zones, Title 5 timing, seasonal utilities, and appraisal dynamics can all influence your approval and your total cost. If you want a concierge experience with an advisor who coordinates lenders, inspectors, insurance, and local permitting while you focus on the home itself, connect with Shane Masaschi. You will get Cape-savvy guidance, discreet representation, and a clear path from offer to closing.
FAQs
What is the typical down payment for a Chatham second home?
- Many second-home conventional loans start around 10 percent down, while jumbo loans commonly require 20 percent or more, and exact terms vary by lender and your profile.
How do short-term rentals affect my loan in Massachusetts?
- If you plan significant short-term renting, lenders may classify the home as an investment property, which means higher down payments, rates, and reserves compared with a second home.
Do I need flood insurance for a waterfront cottage in Chatham?
- If FEMA maps place the property in a Special Flood Hazard Area, your lender will require a flood policy, so check the map and get quotes early because premiums affect qualification.
Can I use FHA or VA financing for a Cape Cod second home?
- Government programs like FHA, VA, and USDA generally require primary occupancy, so they are not typical options for second homes in Chatham.
What documents should I prepare before applying in Barnstable County?
- Expect to provide income and asset statements, proof of down payment and reserves, details on your primary residence, and property items like Title 5 results and insurance quotes.
