Buying a second home can be a dream come true for many people. It may be a home to use on the weekends or one in a different area of the country used for business travel. No matter the use, finding the right second home mortgage is important for most buyers.
It is possible to have two loans on two homes. Individuals hoping to buy a second home should have a few key details before choosing a mortgage for it.
Who Can Buy a Second Home?
The underlying factor to consider when it comes to buying a second home is affording it. With second home mortgage rates still rather low, it may be possible to find a home that is affordable. Lenders want to see that a borrower has the ability to make payments on his or her loan – no matter if it is the first one or the second one. This may mean having the financial ability to meet the financial obligations of both loans – a primary residence loan and a second home.
Individuals who have paid off their primary home may find it easier to qualify for a second home mortgage. However, lenders will not disqualify a person just for having a current loan. It comes down to being able to afford to pay two mortgages.
Down Payment Requirements
Most second homes do not qualify for federally backed programs. As a result, individuals are likely to need a sizable down payment to obtain the loan. The amount of this may depend on the lender. The typical 20 percent down still applies here.
Because there is no mortgage insurance requirement, the lender is taking on more risk. And, as a result, it is likely to require borrowers to put more money down right away to pay for the purchase. Borrowers who make down payments are less likely to foreclose on the home.
Second Home Mortgage Rates
When it comes to second home mortgage rates, these loans are secured properties. That means the value of the home must be at least as much as the amount borrowed. This can help to keep second home mortgage rates low.
These rates can be slightly higher for borrowers who are at a higher risk of default. They tend to be slightly higher from loans made on primary residences only because of the increased risks.
How to Start the Process
After a borrower finds a home he or she wishes to purchase, the process of financing a second home begins. The lender first needs to be sure the borrower is well-qualified. Credit scores, income, and current expenses play a role here. Lenders do not offer these loans to individuals who do not have a steady income and a proven track record of making financially sound decisions.
The next step in financing a second home is ensuring the value of the property is high enough. A full inspection of the home is completed. A market analysis is completed to learn the true value of the property. The lender will verify the value of the home before offering the loan to the borrower.
After this is complete, the lender will process the home loan closing. This process can take several weeks to months to complete.
Is Buying a Second Home Wise?
Many people want to buy another home for various reasons. A vacation home mortgage can open the door to a higher quality of life. And, it may present an opportunity to live a life more fitting to your needs.
It is important to be careful about investment property. If a borrower secures a vacation home mortgage without the goal of renting out the property and then does rent it, they may be violating terms of the loan contract. Some lenders put restrictions on renting out properties like this while the mortgage is in place. This is simply due to the amount of risk present.
It is possible to purchase a second home for investment property. When doing so, be sure to let your lender know that this is a part of the plan. Doing so can help eliminate the risk that the lender restrictions this type of use for the property.
Finding the right lender matters. Most lenders today offer this type of loan. However, buyers should compare interest rates, terms, and loan features before deciding to use these lenders. In addition to this, second home buyers must also be well prepared financially to make this investment.
In some areas, such an investment can be worthwhile. It can help build financial wealth, too. With so many loan programs available to help individuals to buy the second home they desire, it is possible to find a dream home as well as an affordable loan to pay for it.