Are you buying a property as your second home? Perhaps you are looking for a small cottage or apartment where you can escape to for your vacations, or maybe you want to have another home closer to your relatives?
Maybe you want to rent out your second property and make a steady income from your investment. Whatever the reason, a second piece of real estate can be a fantastic investment. However, sometimes getting a mortgage on your second home can present a challenge.
Generally, a mortgage lender will have tougher standards for vacation home — or second home — loans than primary home loans. This is because usually when you are buying a second home your finances will be stretched thinner and you will have less money to spare due to already paying a mortgage on your primary home.
This additional risk may mean that your second home mortgage can be more difficult to close and likely could carry a higher interest rate.
Here are three tips to keep in mind that will help you to get the best mortgage on your second property:
Build up a decent amount of savings.
Your mortgage lender will want to be able to see that you have a large amount of savings in reserve so that you will have enough to pay for the mortgage even if you were to lose your job or other income source.
Pay off any credit card or installment debt.
Many lenders will be hesitant to approve your second home mortgage if they see that you have a lot of debt on your credit card. They will want to see that you have a low debt to income ratio so that you will be able to pay back the loan.
Use your primary home as a resource.
If you have always made your payments on time and you are well on your way through paying off your first house, you may have equity to borrow against for some or all of your second home purchase. Be careful here though. There is a little known IRS regulation that requires the second home be financed under it’s own home loan within 90 days of closing to get the best tax advantages.
These are just a few tips to keep in mind in order to make getting a mortgage for your second property as easy as possible.
To find out more about investing in a second home or vacation property, contact your trusted real estate professional today.