6 Great Tips To Purchase A Second Home In 2021
Do you want to purchase a second home? Whether you’re looking to acquire a second home for summer or winter vacations, or an investment property to rent out, we can help. Read on to understand the process of purchasing a second home and your possibilities.
Purchase a second home as an investment
There are numerous advantages to this option. For one thing, you can sell your rental property and use the money to purchase another rental property without paying capital gains tax. A rental property is a long-term investment; you could pay the mortgage each month with the rental income and pay it off without spending any of your own money. You’ll be able to deduct the interest you pay on your second house, which is a major benefit.
Related: Increase Your Home Value In 6 Ways
Purchase a second home as a Vacation Property
Perhaps you’re buying a second house because your state has tough summers and winters. A vacation house where you live part-time would not affect your mortgage options in the summer or winter.
Purchasing a second home has some drawbacks, such as paying property taxes on two properties. Also, because you’ll be paying two mortgage loans, your cash flow will be diminished; however, if you can manage it, they’ll pay off large in the end when you own both residences outright.
1. There are no government loans available for a second home
FHA loans are popular among first-time buyers since they are designed to encourage homeownership. They only require a 3.5 percent down payment, have less stringent credit score criteria, and are generally easier to qualify for than traditional loans. FHA loans aren’t available for rental properties that aren’t going to be your primary residence. The same can be said for VA, 203k, and USDA loans. Only your primary house is eligible for government mortgage schemes.
2. You might be eligible for a second FHA loan
If the FHA guarantees your current mortgage. If you already have an FHA loan, you might be able to secure a second one to buy a new house while renting out your old one. Also. if you were offered a new job that required you to relocate. Alternatively, if your family has outgrown your current residence and requires a larger residence to fulfill your needs.
Learn more: How To Afford A Second Home
3. You’ll require a conventional loan
A conventional mortgage can be used to purchase a second home as an investment property. The fact that conventional loans have few restrictions on the type of home you can buy is an advantage.
A bigger down payment is required for conventional loans than for any government-backed mortgage. Most mortgage lenders will offer a maximum loan-to-value ratio of around 90% LTV.
4. To be approved to purchase a second home, you must have sufficient income
To be authorized for a second mortgage, you must meet certain debt-to-income ratio requirements. If you currently have a mortgage on your primary house, you must have sufficient income to support both mortgage payments without having a debt-to-income ratio of more than 41%.
Divide your total monthly debt obligations, such as credit card payments, student and personal loans, your existing mortgage, and your expected mortgage payment on your second property, by your monthly pre-tax income to get your debt-to-income ratio (DTI ratio).
5. You must have a credit score of at least 620
A FICO score of at least 620 is required for conventional loans. Of course, the better your credit score is, the lower your interest rate will be. Before you apply for a second mortgage, be sure your credit score is as good as it can be.
Reduce your credit card debt, don’t open nor close bank accounts, and be prepared for a credit inquiry.
6. To purchase a second home, you’ll need a real estate agent
Some buyers mistakenly feel that not using a real estate agent will save them money on an investment property. This could hardly be more untrue. In truth, the seller pays for the buyer’s agent, not the buyer. A 3% charge is already factored into the home’s price. Just because you’re not working with a realtor doesn’t guarantee you’ll save 3%.
Furthermore, real estate contracts are complicated, and you may find yourself paying for something that the seller would normally cover. When buying a home, always employ a real estate agent.
Do you know any more tips for buyers looking to purchase a second home? Tell us in the comments section below.