The Qualified Mortgage (QM) rule – which became effective on January 10, 2014 – was designed to assure that borrowers have the ability to repay their loans, reducing the lender’s risk. The Qualified Residential Mortgage (QRM) rule establishes standards and requirements for loans to ensure the originating lenders hold part of the risk for loans that do not meet certain criteria.

While neither rule specifically bans mortgages with less than 20 percent down, many lenders will take a conservative approach to lending upon implementation of these stricter requirements in an effort to protect both themselves and the borrower.

The housing recovery hit its stride in 2013 with larger than expected housing price gains and consistently solid home sales. 2014 is expected to garner single-digit price gains as home prices level out for the year. As prices begin to stabilize and the market returns to consistent performance, the return of the second home purchase is returning as well.

Many feared that the scrutiny of the new regulations would negatively impact the second home investment and vacation home market. However, the regulations seem to have only strengthened the already strict process of second home loans.

Both Fannie Mae and Freddie Mac have increased their share of the home mortgage market significantly over the past year. This is good news for many buyers as the QM lending rules established by the CFPB exempt mortgages that qualify for purchase from Fannie Mae or Freddie Mac. This condition has allowed for the continued process of second home and investment property loans.

Furthermore, the government programs of FHA and VA loans continue to operate with a standard of 3.5 percent down payment and zero percent down, respectively.

The QM rule provides very clear guidelines for lenders on how the borrower’s ability to repay the loan must be verified with documentation concerning the borrower’s financial position.

Therefore, in order to meet the requirements of these new regulations, lenders now review a borrower’s entire financial picture prior to making a lending decision, which may seem invasive and excessive in the eyes of many consumers. Provisions require that a borrower’s total debt payment cannot exceed 43 percent of their pretax income.

To assist with the qualification for a second home loan under the new regulations, many lenders are guiding their potential homebuyers to consider putting down a larger than 20 percent down payment. This typically drops the monthly payment considerably and allows for many second home buyers to qualify.

Although unexpected, the second home loan market appears to be making a rebound and is once again becoming a possible investment option for many prospective homebuyers.