- Ever considered buying a second home?
- Ever wanted to have a second home be your vacation escape?
- Have plans on giving your children or predecessors a home for the future?
If you’ve answered “Yes” to any of these questions, then chances are, you may have learned that having a second home is possible. That means that you’ll need to get a mortgage on your second property.
Now, when getting a mortgage for a second home, keep in mind that it’s nothing different from having one for your main residence. Depending on what you’re going for, you’ll either have to obtain a second mortgage on your current property or get one for the property that you’re looking to buy. While this may sound complicated already, do not worry!
This quick guide will take you through the few things that you’ll need to know as you plan to apply for a mortgage on a second home.
- Know Your Goals
First, you’ll need to set some goals for your second home. Whether you want the second home to be a summer retreat, or a vacation home, or something to pass on to your children, now is the time to start thinking about what you’ll do with that second property. You’ll also need to consider getting insurance and the amount of tax you will pay since they’re vital to owning any form of property.
- Do Your Calculations
Calculating the following can help you figure out how much you’ll need to get a second home mortgage:
- Property taxes
- Maintenance and repairs
- Homeowners’ insurance
- Property management
- Furnishings, etc.
By doing the necessary calculations, you’ll be more prepared in paying for the mortgage to your second home, meaning no surprise fees once you confirm that you want to buy.
- Know Your Options
No matter what kind of property you choose as your second home, you’ll still need to have options available. When applying for a loan to get a second home, you’ll need to look at the types of loans that are available to you, along with their interest rates. You’ll also need to consider which loans will tolerate any of your debt because lenders want to see that your debt is no more than 36% of your monthly pre-tax income – this is your debt-to-income ratio. You can always consult a professional loan officer to help you better understand costs and available loan options when buying a second home.
- Get The Funds
Finally, if you’re a first-time home buyer, then home equity is out of the question. But if you’re an owner, your home equity can help you buy your next property. There are two options to consider: You can apply for a mortgage, or you can apply for a line of credit.
First, applying for a mortgage is easy when you have home equity. However, this all depends on how much home equity you have. Consider these factors, and what they mean to you:
- If you have a big home, you’ll need a new mortgage for a higher amount.
- If you plan on buying a smaller home, you’ll need a smaller mortgage.
- It’s also possible to move your mortgage on the new home to another lender, depending on other factors, like prepayment charges.
Now, applying for a line of credit is different from applying for a mortgage. With a line of credit, you can combine it with your existing home equity, if at least 35% of it is available. Consider the features:
- A line of credit has no prepayment change.
- Lines of credit have flexible payment schedules, meaning you can pay more or less at any time.
- A line of credit is reusable credit, meaning that more credit becomes available as you pay down.
- With a line of credit, there are possible tax deductions from it, meaning that you might get a tax break from it, if it falls into non-registered investments, like stocks and mutual funds.
Ultimately, buying a second home takes time and effort to figure out. However, with this guide, you can delve through the mortgage process, and make the necessary preparations for your second home. We wish you the best, homeowners!