Tips for Getting Approved for a Mortgage When Buying a Second Property
The intended purpose of the second property can be a key consideration when it comes to second mortgage loan rates. Not all lenders offer mortgage products for buying a second home for the sole use of the principle owner, if the borrower plans to rent the home for any period of time, or for development purpose. As an example, a borrower buying a second home intended to only be used a few months a year and never rented may be a better in position to be granted a second mortgage from a lender. If the borrower does intend to rent the property the interest rates for the loan will typically be higher. On the other hand, there are lenders that will not only offer loans on investment properties, but specialize in those buying a 2nd property. Here are some tips for getting approved for a mortgage when buying a second property:
Make Your Intentions Clear
Tell the lender up front what you plan to use the property for, before you even begin the process of applying for the loan. This will prevent you from wasting time, being disappointed or ending with a much higher interest rate than you planed on. As a note, borrowers are typically required to sign an agreement stating the property will not be used for rental purposes.
Analyze Your Finances
Buying a second property is often a profound financial obligation, especially if the new property will only be used for vacations and not to generate income. A second property comes with additional expenses beyond the monthly mortgage payment, so it is important to both know and be able to demonstrate you can afford the additional expenses before you start loan shopping. Take some time to critically scrutinize your financial ability to handle all aspects of a second mortgage, to be sure you aren't getting in over your head. Remember, just because the lender agrees to approve your loan doesn't mean you can afford the mortgage.
Show You Have Skin in the Game
Just as with a loan for a primary residence, taking out a mortgage on a second property typically includes making a down payment, and the larger the down payment you can offer the greater the likelihood of being approved.
When looking for a mortgage for an invest property, such as a rental or development, it is import to show the lender you have some skin in the game, as explained in this post from Holden Capital. Any lender wants to see that a developer or investor is willing to assume their share of financial risk, especially on big-money projects. If you can show the lender you are willing to risk your own funds your are much more likes to get a “yes.”
Shop Around
Perhaps the most important tip for securing a mortgage on a second property is to spend some time researching lenders and then shopping around for the best mortgage, not just to find a financier who will approve a loan, but to be sure you are getting the best terms available. It is also worth considering employing the services of a mortgage broker, as a broker will have access to many diffident lenders and be able to save you a lot of time and legwork, as well as money.
Equity Alternatives
A primary residence may hold enough equity to buy the second property, or at least have enough to make a larger down payment to meet the lender's requirements. Just be sure to add the additional cost of the home-equity loan into the monthly expenses of the new property.
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