Current homeowners have the option to get a second home for vacations or where they can live half of the time. The requirements for the mortgage of choice could place some restrictions on how the buyer finances the home. When preparing to buy a second home, the buyer must consider all their options and how each choice affects their lending opportunities.
How Will You Use the Property?
How the buyer intends to use the property can define what type of mortgage they need. Some mortgages, such as the FHA mortgages, require the buyer to use the mortgage to purchase a primary home only. If the buyer wants a second home that they won’t use full-time, they won’t be able to get an FHA mortgage. Conventional mortgages might present a better choice for financing a second home and getting a more affordable mortgage.
Are You Selling Your Current Home?
Next, the lender will want to know if the homeowner has any intentions of selling their primary home now or in the future. If the homeowner has intentions of selling the current home, they could avoid restrictions by selling it before they set up a new mortgage. It is possible for the homeowner to add a contingency for a new home purchase that gives them enough time to sell their current home before purchasing another property. Buyers might consider contacting Dustin Dimisa to discuss their options for financing a second home.
Will You Rent Out Either Property?
Buyers who want to rent out their primary or second home might face some obstacles when getting a mortgage. If the second home will be a rental property, the buyer will need more financing options. It will be considered an investment property, and some lenders might classify the purpose as a business venture. As such, the interest rates for the mortgage could be considerably higher for the property than a mortgage for a home that the buyer will use.
Taking Out an Additional Mortgage
Once the buyer establishes how they are using the property, it is easier for the lender to provide a mortgage that meets the buyer’s needs. If they are using the property half the time or for vacations, the buyer needs a new mortgage. The down payment for the property will range up to 20% of the total mortgage amount. The lender will require mortgage insurance for the additional loan.
To save money on premiums, the buyer can add the new property to their existing homeowner’s insurance through an umbrella policy. This provides some savings for multiple policies, and the homeowner can get great discounts. If the property is in a designated flood zone, the homeowner will need the additional policy. Combining the policies together makes it more affordable for the buyer.
Existing homeowners can take out a new mortgage to buy an additional property. How they use the property defines what mortgage meets their needs most effectively. It can also determine what type of insurance they will need for both properties. Homeowners can discuss their options for financing a second home by setting up an appointment with a lender today.