So you have purchased your first home and you are thinking of buying a second home, whether to serve as your vacation home or as your resident in your hometown if you live in a bigger city or purely for investment, then you are likely to get a mortgage for it.
Most people need to take out a mortgage for their second home unless your resources can afford to pay for it in cold cash.
But before deciding on getting your second home, you have to ask yourself the following questions:
Can I afford to buy a second home?
There are a lot of costs to consider when buying a second home. You need to calculate your payment which includes the down payment, the monthly mortgage, property tax, insurance, miscellaneous fees and landscaping, among others.
You can get an estimate for the monthly payments using a mortgage calculator. According to Bloomberg, although there has been an increase in the demand for vacation homes this year much more than pre-pandemic levels, there has also been a rapid increase in mortgage rates causing prospect second home buyers to have second thoughts.
Many people were interested in purchasing second homes because of the work from home setup brought about by the pandemic yet because of the dip in the stock market over the last few months, the loan fees increased by about 1% to 4% starting this month.
If after thorough assessment in estimating affordability and you realized that you can afford, then by all means, go!
Am I qualified to get a second home?
Review your credit score and check all your income and assets before deciding to buy a second home. Make sure that you have extra money in case you might have a loss of income just like what happened to many people because of the pandemic.
The process in applying for a mortgage for your second home is similar to that of a mortgage for your primary home but there are some lenders that demand a higher credit score for your second mortgage. You might also need to give a higher down payment and the interest rate might also be slightly higher than the primary home mortgage.
Take note that the rules are different for getting a second home mortgage and getting a vacation rental mortgage or a mortgage for a home that you will use for business. Do some research, talk and check several lenders, then choose a loan that works best for you.
It can be quite challenging to decide on getting a second home but with enough research and once you review your finances, it can be easier. Just try to answer these questions and check your options in getting a mortgage.