Things to Know About Purchasing a Second Home

The process of purchasing a second home will resemble when you purchased your first home. You will have to provide all of the same documentation and will still have to go through the same mortgage and real estate purchase processes. However, there are a few important differences when buying a second home.

Understand What Lenders Classify as a Second Home

When you apply for a mortgage for a second home, your lender must validate that your new property meets the criteria for a second home. The first thing that your lender will check is the size and price of the secondary residence as compared to the primary residence. The second home must be smaller in size and price than the primary residence. The next thing that your lender will check is whether or not the second home is at least 100 miles away from the primary home.

For many second home buyers, their desired property does not meet the set of circumstances required to be labeled as a second home by a lender. The situation is different for every buyer and lender and for each circumstance, so don’t give up on buying that second home quite yet. The down payment difference between a primary residence and a second home is very small. In most cases, buying that second home is still easier than purchasing an investment property. It will depend on what type of mortgage you choose, but your down payment will most likely be between five and ten percent. Remember that the more money you put down, the lower the interest rate that you will be offered and the lower your monthly payment will be.

Talk to Your Bank about Your Mortgage Options

Purchasing your second home offers you the same lending options that you had when you bought your first home. There are a few new options for this purchase that you may want to consider. If you plan on holding on to the home for a long time, talk to your lender about a fixed rate mortgage. However, if this purchase is going to be short-term in nature, consider an adjustable rate mortgage or a balloon as an option. Either of these options will get you your financing with a much lower rate than the fixed rate mortgage will offer.

Gather Information About Second Home Purchases

Your interest rate can be the same as your primary home, in many cases. Many mortgage lenders offer second home buyers the same rate and down payment as a primary home. Some things in a buyer’s financial history, however, can lead to a very slight increase in the mortgage rate. In most cases, this increase will only be one-eighth of a percent over the going interest rate, but the increase rarely goes over one-fourth of a percent. To figure out how much these increase will affect your payments, use a mortgage calculator and add a fourth of a percent (just to be safe) to the advertised mortgage interest rate and factor a five percent down payment. That will give you an idea of how much these variance will affect your mortgage payments.

If you are curious, you can use the going interest rate when considering possible payments. Use a mortgage calculator and figure in at least 5% down payment. Use the posted interest rate, add a quarter percent to be safe, and play with the figures. Make sure and take the interest paid per year into consideration. Everyone can use another tax deduction. If it is in your budget and would give you your dream, what are waiting for?

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