Financing For A Second Home
Zach Silverman | November 8, 2023
If you’ve been thinking about buying a second property and you’re looking to put some of the pieces together, you’ve come to the right place!
Whether you’re looking to buy a vacation property, start a rental portfolio, or help accommodate a family member, there are many reasons to buy a second property (while keeping your existing property), which might make sense for you!
Now, while there are many great reasons to buy a second property, there is also a lot to know as you walk through the process. The key here is to have absolute clarity around your why.
Ask yourself, why do you want to buy a second property? Whether it's a vacation getaway, rental income or a real estate investment, or maybe part of your retirement plan, it isn’t a decision to be taken lightly or one that should be made too quickly. Buying a second property should be a strategic decision that allows you to accomplish your goals, and it should include an assessment of your overall financial health.
So with clear goals in mind, the best place to start the process is to have a conversation with an independent mortgage professional. This will allow you to assess your financial situation, outline the costs, and put together a plan to make it happen.
While purchasing a second property is similar to buying a primary residence, there are some key differences. Just because you’ve qualified in the past for your existing mortgage doesn’t mean you’ll qualify to purchase a second property.
One key difference is the amount of downpayment you might be required to come up with. A property that is owner-occupied or occupied by a family member on a rent-free basis will require less of a downpayment than if the second property will be used to generate an income. So, depending on the property's intended use, you might have to come up with as much as 25%-35% down.
This is where strategic planning comes in. Consider unlocking the equity in your existing home to finance the downpayment to purchase your second home. Here are a few ways you can go about doing that:
- Securing a new mortgage if you own your property clear title
- Refinancing your existing mortgage to access additional funds
- Securing a home equity line of credit (HELOC)
- Getting a second mortgage behind your existing first mortgage
- Securing a reverse mortgage
Before purchasing a second property it's essential to carefully consider your financial health, leveraging your existing assets to lower your overall cost of borrowing, and figuring out the best way to accomplish your goals.
And as it's impossible to outline every scenario in a simple blog post, if you’d like to discuss your goals and put a plan together to finance a second property, connect with our team here at Silverman Mortgage anytime. It would be a pleasure to work with you.
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If you’re thinking about buying a property, but you’re not sure where to start, you’ve come to the right place! Let’s discuss how getting pre-approved is one of the first steps in your home buying journey. Just like you wouldn’t go into a restaurant without knowing if you have enough money to buy your meal, it’s not a good idea to be shopping for a home without an understanding of how much you can afford. You can browse MLS from your couch all you want beforehand, but when you’re ready to start looking at properties with a real estate agent, you need a pre-approval. Now, as there may be some confusion around exactly what a pre-approval does and doesn’t do, let’s discuss it in detail. First of all, a pre-approval is not magic, and it’s not binding. A pre-approval is not a contract that will guarantee mortgage financing despite changes to your financial situation. Instead, a pre-approval is simply the first look at your overall financial health that will point you in the right direction before you’re ready to apply for a mortgage. Said in another way, a pre-approval is a map that gives you the plan to secure an actual approval. After going through the pre-approval process, you’ll know how to qualify for a mortgage and at what amount. When considering your mortgage application, lenders look at your income, credit history, assets vs liabilities, and the property itself. Working through a pre-approval will cover all these areas and will uncover any major obstacles that might be in your way of securing financing. The best time to secure a pre-approval is as soon as possible; it’s never a bad idea to have a plan. Here are a few of the obstacles that a pre-approval can uncover: You’ve recently changed jobs, and you’re still on probation Your income relies heavily on extra shifts or commissions You’re unaware of factual mistakes or collections on your credit report You don’t have an established credit profile You don’t have enough money saved for a downpayment Additional debt is lowering the amount you qualify for Really anything you don't know that you don't know Even if you believe you have all your ducks in a row, working through the pre-approval process with an independent mortgage professional will ensure you have the best chance of securing a final approval. As a point of clarity, a pre-approval is not the same as a pre-qualification. This is not typing a few things into a website, calculating some numbers, and thinking you’re all set. A pre-approval includes providing your financial information, looking at your credit report, discussing a plan for securing mortgage financing with a mortgage professional, and even submitting documents ahead of time. Mortgage financing can be a daunting process; it doesn’t have to be. Having a plan in place and doing as much as you can beforehand is essential to ensuring a smooth home buying experience. As there is no cost for getting a mortgage pre-approval, there is absolutely no risk. Consider starting the process right now! If you’d like to walk through your financial situation and get pre-approved for a mortgage, let’s talk. It would be a pleasure to work with you!
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