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Second / Investment Home
If you're considering getting a second home mortgage, you should know that it's going to be a little bit harder to do in this economy.
It's always been a more difficult thing to do, of course, because if you're getting a second home mortgage, you are going to be spending more than someone who's just getting a first home mortgage.
A second home mortgage is going to run between a quarter and a half point higher in interest than that for your first residence. That's true of origination points, too.
Beyond that, though, second home mortgages should be "easy" to get, considering several things.
That is, if you've got a good credit rating, and your finances are in order such that you are realistically in the market for a second home mortgage, you'll probably be able to get one.
It's going to be especially easy for you if you're really in good financial shape, because there's a lot more competition in the second home mortgage industry today.
Simply, that's because lenders know if you're looking for a second home mortgage, you probably have the money to get one and you'll be more affluent. They want to do business with this type of person; by contrast, "first home mortgage" lenders have to be very careful whom they lend to, since the housing market has taken such a dive; lenders are hurting in that area, and they can sometimes make up some of what they've lost by doing business in second home mortgages.
However, that's not to say the money's going to be easy to get. Not so long ago, you could finance a second home mortgage's down payment by opening up a home-equity line of credit on your first home.
However, home values are falling even in "good" housing markets, which means that even if you can get a line of credit, you're probably not going to have as much to work with as you would have just a few years ago.
Documentation
As with buying your first home, you're going to need to be able to prove that you can afford to buy a second home and therefore qualify for a second home mortgage. That is, you'll have to show that you can manage two mortgage payments, although there are several ways you can do this, too.
For example, perhaps you can refinance your first mortgage so that instead of it being a 15-year mortgage, you can refinance it to a 30 year mortgage so that you have lower mortgage payments on a monthly basis; if you can lower the interest rate on that mortgage besides, you'll free up even more money.
A good credit score
You'll also need a good credit score, one that approaches 700 or even above. That's especially true if you want a good interest rate; you can probably get a second home mortgage if your credit score isn't above about 680, but it's going to be more expensive for you in terms of interest.
Are you renting the second home out when you're not there?
If the second home is going to be rented during times when you're not there, you are going to have to prove that it's going to provide a decent cash flow for you, especially if you intend to bolster income requirements for mortgage loan approval with that.
However, many lenders will refuse to write a second home mortgage if you're going to be renting that property, because they have a great deal of difficulty selling mortgages on investment properties of this type.
You'll probably also have to get a second appraisal for this type of approval, so that you can show what rents and occupancy rates at similar homes around the area are; this will cost you several hundred dollars to do this.
Even if you can "prove" estimated rental income, though, your lender is not going to take all of that into consideration. Even if your rental income is pretty much "guaranteed," they still won't consider all of it and may only consider about 70 to 75% of it.
These things can help you get a second home mortgage if that's what you're in the market for. It doesn't guarantee that you'll have an easy time of it, nor does it guarantee that you'll even get one.
But if you do have all your financial "ducks in a row," and you are a good prospect for a lender, it's likely that you will be successful in getting a second home mortgage.
Second Home Mortgage Information
The subject of home mortgages can be a rather complex one. There are many different facets surrounding the application of a mortgage. While there is some confusion over the subject of a basic mortgage, the confusion surrounding the concept of a second home mortgage is even greater.
However, the subject of a second home mortgage can be effectively explained as long as all the points surrounding it are adequately addressed.
The following is a complete overview of what such a mortgage entails. Hopefully, it will dispel a variety of the myths that have arisen regarding the ability to take out a second mortgage on a home or property.
So, what exactly is a second home mortgage? Such a loan is a secured one designed to "back up" another loan on the exact same property. Some may find this to be an odd form of borrowing because it may not be something they are familiar with.
However, second mortgages are not as uncommon as one would initially think. In fact, some homes may have several loans or liens taken out against them. But, in general, a second home mortgage is usually the most common of the additional liens taken on a home.
Often, a second mortgage on a home is known as a subordinate mortgage because the first mortgage remains the primary one when it goes into default. In other words, if the loan goes into default the first (primary) mortgage loan will need to be paid.
Afterwards, the second mortgage can be sought. Needless to say, lenders find such loans to be risky which is why interest rates on such loans can be quite high. While some may not wish to pay such high interest rates, avoiding them may prove impossible if you are seeking a second home mortgage.
In general, the bulk of the second mortgages taken out on a loan are done in the guise of a home equity loan. The totality of such a loan is often only a fraction of the value of the home. For example, a home equity loan of $15,000 can be taken out on a home worth $250,000.
The $15,000 is taken out as a secured loan with the home as collateral. As such, such a loan could be considered a lien on the property that would have to be paid if the home was sold.
Since such loans are secured loans, they have a specific term applied to them. That means the loans will have to be paid off within a specific time frame. In general, a second home mortgage can be taken out for a 30 year term. However, much shorter terms - even significantly shorter terms - can be offered.
Ultimately, the terms and structure of the loan will all depend upon what is negotiated between the borrower and lender as well as the amount sought. Of course, it goes without saying that anyone seeking a second mortgage on a home should look for the best possible deal available. There is no reason to accept a loan with a term that is disagreeable or an interest rate that is equally unreasonable.
Please be aware that simply because the loan is secured via the home that the lender will not look into other areas of the borrower's background. Clearly, the credit score of the potential borrower will weigh into the decision as to whether or not to issue the second home mortgage. Other areas of consideration will include the current income of the individual, employment history, and net worth.
The equity of the first mortgage will also be taken into consideration prior to the issuance of the loan as well. Those that are solid candidates for approval will probably find their request approved with little problem. Others that are may have marks on their credit will discover that approval may require a little "shopping around" for a lender.
Unfortunately, this may lead to an approval but with a higher interest rate. That is just the way things work in the second home mortgage arena. In a way, the lender would be doing the borrower a favor by providing such stringent terms. After all, it would not be the best scenario to provide a second mortgage loan to someone that might run into difficulty paying it back.
The concept of a second home mortgage is not one that is complicated to understand. Those in need of a viable lending option might wish to look towards those lenders providing such loans.
