Are you in the market for your second home? Maybe you’re looking for a condo or apartment where you can escape to for vacations. Or maybe you want to rent out your second home and make passive income from your investment. Whatever the reason, you'll want to make sure you get the best financing possible.
When you’re buying a second home, a mortgage lender will be more critical and have higher standards than a primary home loan. This is due to the fact that you are taking on additional financial risk for the second home mortgage and you may not have extra money to spare because you’re already paying a mortgage on your primary residence.
This additional risk may mean that your second home mortgage can be more difficult to get approved and likely could carry a higher interest rate.
There are a few things you can do to make sure you get the best deal on your mortgage. We’ll discuss 3 tips that will help you get financed for your second home purchase!
Build Up an Adequate Amount of Savings
To ensure you have a financially secure future, your lender will want to see that there's an adequate amount of savings in reserve. This is so they know if anything were ever happen such as losing your job or other income source then at least the payments can still get made on time.
Pay Down or Pay Off Any Debt
If you have a lot of debt on your credit card, then lenders might be hesitant to approve the second home mortgage. They want people with low debt-to-income ratios so that they know you can pay back the loan without trouble.
Leverage Your Primary House as a Resource
Has the property value of your primary house increased over time or are you close to paying off your first mortgage? If there is enough equity in your primary house, you can actually borrow against it for some or all of your second home purchase. Be advised that there is a little known IRS regulation that requires the second home be financed under its own home loan within 90 days of closing to get the best tax advantages.
The mortgage process can be overwhelming, but it doesn't have to feel that way. Keep these few tips in mind to make getting a mortgage for your second property as easy as possible.