How To Get A Mortgage For A Second Home

Whats The Difference Between A Second Charge Mortgage And Remortgaging

If you want to borrow extra money against the equity in your home, remortgaging and second charge mortgages are both options to consider.

Remortgaging is when you take out a new mortgage that replaces your existing one. This can be for the remaining amount you owe, or you can borrow extra on top if the value of your home has increased.

Around a third of mortgages in the UK are actually remortgages, as people often switch to get better value. For instance, once a fixed rate or introductory offer ends it makes sense to look for a better deal.

Here are the main differences between the two approaches:

Second Mortgage Fees And Rates

Second mortgages tend to have higher interest rates than primary mortgages, but they may still be less expensive than other forms of credit.

Interest rates for home equity loans have risen this year alongside the Federal Reserves federal funds rate, which has been hiked in response to the highest inflation in 40 years. Rates now average more than 7% for both loans and HELOCs.

Second mortgages can have additional fees. For example, you may have to pay closing costs, which can be 2% to 5% of the loan amount. You may also have to pay early termination fees, annual fees, inactivity fees or make a balloon payment to satisfy the loan.

Buying A Second Home As A Holiday Home

Purchasing a second home can be for more than just investing. If youre ready to buy a second property for yourself, you can explore the option of getting a holiday home.

Having a holiday home can be a great reason to get a second home for residential purposes, while also giving you the option to rent it for short term periods, during peak seasons or when youre not holidaying there. It is important to understand that you will need to maintain the costs of two mortgages, especially in periods where you are unable to get rental income when there is nobody looking to holiday there.

You will also need to consider the location of your holiday home for multiple reasons. If you choose to purchase a holiday home that is a considerable distance to your primary residence – in another state for example – you will need to consider the costs of managing the home and ensuring that there are no major damages that go unchecked for long periods of time. By having constant maintenance on the home this may help prevent further damages and save you in the long term. Other considerations for the location of your holiday home is understanding the area you are purchasing, in terms of future growth and developments and also making sure it’s a location you are looking to consistently go to for holidays as its likely to be a long term purchase.

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What Are The Mortgage Requirements For Buying A Second Home

The mortgages you get on second homes dont have the same qualifying requirements as regular residential mortgages because they come with greater financial risk for the lender. When you apply for one, prospective lenders weigh up how much you already pay towards your existing mortgage to make sure you can afford another mortgage. Second home mortgage rates can sometimes be higher and most lenders require a deposit of at least 15% of the property value.

Turning Your Second Home Into An Investment Property After Closing

Its not uncommon for someone to decide to convert a second home to an investment property at some point. Its best to read your mortgage paperwork to verify there arent any restrictions on how long the home has to be used as a second home to avoid an investigation for occupancy fraud.

Dont forget to report rental income to the IRS when you file taxes. If you decide to refinance, youll be subject to investment property guidelines and interest rates on the new mortgage. That means youll need more equity to refinance and will likely pay a higher rate than you did when the home was classified as a second home.

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You Dont Need To Use Your First Mortgage Lender

You can choose a new lender for your second mortgage if you prefer. Therefore, youll want to shop around to find the best interest rate. Obtain quotes from at least three lenders and make sure the loan terms are identical so youre getting an apples-to-apples comparison. Some lenders are more open to waiving certain nominal fees than others.

Tax Benefits Of Second Homes Vs Investment Properties

The tax benefits of a second home are very different from those associated with an investment property. The table below shows important differences:

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One important reminder about the 2018 tax rule changes: You can only deduct mortgage interest for up to $750,000 worth of total mortgage debt, including loans on primary residences, second homes and investment properties. However, that limit increased to $1 million if the property was purchased prior to Dec. 15, 2017.

Its always best to consult with a tax professional to get tax advice to maximize the tax benefits of your second home or investment property.

Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Second Home Mortgages In North Carolina: What You Need To Know

Not only is North Carolina one of the most beautiful places to visit, but it is also one of the most affordable places to have a second home. From the growing industrial hubs in the city of Charlotte to the peaceful shorelines on the coast of Beaufort, the Tar Heel State is a popular place for tourists to visit and vacationers to dwell.

If youve ever visited North Carolina, you may be thinking that it could be the perfect place for your home away from home or perhaps you see a booming real estate opportunity for an investment property. No matter your unique intentions, theres no time like the present to pursue your homebuying dream.

Were covering everything you need to know about qualifying for a second home mortgage in North Carolina. But first, lets talk about some of the benefits of buying a second home.

How Much Deposit Do I Need For A Second Home

Most second home mortgages require at least a 15% deposit, and you may need to put down even more than that if your current income won’t cover a second mortgage for the amount you want to borrow as well as your first mortgage.

As interest rates are usually higher when getting a mortgage to buy a second property, borrowing the same amount is likely to cost you more than with your first mortgage.

Your existing mortgage repayments will form part of your financial assessment when applying for a second home mortgage. You won’t be approved for a second home mortgage if you cant afford to make the repayments on top of your existing ones.

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Speak To A Second Home Mortgage Expert

If you want financing for a second property and would like to speak to an expert for the right advice, call 0808 189 2301 or make a quick online enquiry for a free, no-obligation chat.

Well match you with an expert in second home mortgages who will be happy to answer all your questions and help find you the best mortgage deal based on your circumstances. We dont charge a fee and theres absolutely no obligation or marks on your credit rating.

Homes Money Personal Credit Line

A HELOC was an unrestricted credit line linked with the money inside land.

Like a charge card, it is possible to borrow and pay resources as the range remains available. HELOCs has a preliminary draw stage determined at the outset of ones loan and a repayment stage thats usually completely amortizing.

This is basically the best solution if youre enthusiastic about property flipping as it allows you to choose the residential property, pay money for building work and pay the range if the residential property sells.

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Get Expert Advice About Your Second Property Purchase

Our customers consistently rate us 5 stars on Feefo because we offer access to expert brokers who:

• Can offer you access to the whole of market
• Know the best second home lenders for your unique circumstances
• Can offer bespoke advice to second home buyers
• Are fully OMA accredited
• Have passed the LIBF training course

Apply For A Line Of Credit

You can combine your existing home equity with a line of credit to finance a new property. This option has several features:

• No prepayment changeOpens a popup.. Payment schedules on lines of credit are more flexible. This means you can pay more or less at any time, without a prepayment charge.
• Reusable credit. On a line of credit, more credit becomes available as you pay down your line of credit, up to your approved credit limit.
• Possible tax deductions. You might get a tax break if you invest money from a home line of credit into non-registered investments, like stocks and mutual funds.

To qualify for a line of credit, you need at least 35% of your existing home equity available.

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Other Factors That Affect Eligibility

If youre getting a mortgage on a second home, you should expect the lender to consider the following factors when assessing your eligibility:

• Your income type borrowers in full-time employment carry the least risk to lenders, but getting a mortgage for a second property may still be possible through a specialist provider if youre self-employed or make a significant sum through things like benefits, bonuses and commission.
• Your credit rating getting approved for a second mortgage might prove more difficult than when you were taking out your first home, as some second mortgage lenders are stricter when it comes to lending to people with a history of adverse credit. However, specialist providers might take the severity of the credit issue and how long it has been on your file into account and take a more flexible approach to your application.
• Your age getting a second mortgage for a second home can be tougher if youre retired as some lenders wont cater for borrowers over 75, others go up to 85 and a minority will lend to a pensioner of any age as long as theyre confident they can meet the mortgage payments during their retirement.
• The property type if youre hoping to get a mortgage for a second home that includes any non-standard construction elements a specialist lender might be called for as some providers consider these buildings high risk.

What Is A Second

A second-home mortgage is a loan that allows you to buy a second property. Its important not to get this confused with a second charge mortgage, which allows you to take out a loan to access the equity in your existing home.

Typically, the kind of second-home mortgage you get will depend on what you plan to do with the new property. Most lenders have different options that might suit your needs.

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What Are The Differences Between Mortgages For A Primary Residence And A Second Home

A second home mortgage helps pay for a second home or vacation home. Unlike the mortgage for a primary residence where you live most of the time a second home mortgage typically requires a larger minimum down payment and has a slightly higher interest rate, and can have stricter requirements when it comes to cash reserves and debt-to-income ratio.

A mortgage for a primary residence, for instance, might only require 3 percent or 5 percent down, while a second home mortgage might require at least 10 percent.

In addition to that, youll likely need two to six months of reserves, depending on your credit and financial profile, to ensure youre able to cover mortgage payments on both your primary residence and second home.

Your DTI ratio, meanwhile which helps determine your ability to repay the loan might max out at 43 percent, although some lenders cap it at 36 percent. On primary residences, theres usually flexibility up to 50 percent.

Getting A Mortgage On A Second Home / Vacation Property

Buying a second home might be your smartest move. Hotels are great, but they are certainly not a good investment for visitors. Second homes, on the other hand, potentially yield a return while providing a vacation spot over which you have 100 percent control.

According to the Case-Shiller Home Price Index, home prices are up nationwide by more than 5 percent since last year. That means your vacation home might pay for your vacation. And you skip the booking hassles.

If youve grown weary of spending your summer in hotels and vacation rentals, consider joining more than half-million buyers who purchase second homes each year. Understand that buying a vacation home is not a sure-fire win. And its not like purchasing a primary residence. Heres what you need to know before jumping in.

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Getting A Mortgage On A Second Home

From buying a holiday home to helping a relative onto the property ladder, there are many reasons you might want a second mortgage. No matter the reason its important to ensure a second home is affordable. Mortgage rules for second homes will vary depending on your lender. However, all second home mortgages have certain things in common. This guide will take you through what a second home mortgage is and the affordability criteria for most lenders.

In This Guide:

• What are the affordability criteria?

Find A Local Real Estate Agent

Your real estate agent is the most important person in this second home process. Theyll work to find you the perfect home, negotiate on your behalf and be there to guide you through the rest of the buying journey.

Be sure to look for an agent local to the area where youll be purchasing. Theyll know the intricacies of the real estate market better than a regional agent, which means they can offer advice on finances and neighborhoods to explore.

When you search for a REALTOR®, be sure to look for a buyers agent only. Working with a dual agent, or an agent who represents both you and the seller, can cause conflicts of interest.

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Using A Broker For A Second Mortgage

Its recommended to get a professional opinion before getting a first mortgage, let alone a second one! Although you may understand the mortgage process better than first-time buyers, the process for getting a second mortgage is slightly different.

Assessments for second mortgages go under the microscope as theyre high risk compared to single mortgages. Our advisors submit second mortgage applications almost every day so we know exactly how to get the most success.

Well calculate the best deals youll be eligible for and do the hard work for you. You can make an enquiry below to get started.

Can You Refinance A Second Home Mortgage

You can refinance a second home mortgage, but as with any refinance, its crucial to ensure the savings outweigh the closing costs. Because interest rates are higher on a second home mortgage, it can take you longer to recoup these costs. You might also need more equity in your second home in order to refinance and, as with the initial loan, sufficient cash reserves.

Learn more about second homes

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While Commonly Associated With Investment Purposes Getting A Second Home Can Be Used For Multiple Reasons Such As:

• Holiday home

  Purchasing a second home to use solely for yourself or family to go on holidays.

• Family

  Buying a property for a family member

• Secondary residence

  Having a second home in another state if your lifestyle requires you to travel between areas constantly.

• Retirement

  Purchasing a home in a specific area, with the intention to downsize and relocate when planning your retirement.

Bear In Mind Property Purchasing Costs

What many second home buyers dont fully take into account are the .

These costs can amount to anywhere between 3-5% of the property value so you should factor this in when youre deciding on a no deposit solution.

Essentially, to purchase a second property, you actually need 7-10% of the property value to cover:

• Your minimum 5% deposit.
• Inspections including building/strata and pest.
• Home loan set up fees.

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Determine The Location Of Your Second Home

When buying a second home, its very important to consider the location. If you plan to use it as a vacation home, youll want it to be far enough from your primary residence that it feels like youre getting away from the world, but not so far away that you rarely get to travel there. If you plan on hosting family a lot, you may also want to consider looking for a property thats centrally located within a few hours of everyone.

Some other factors related to location that potential buyers ought to think about are the attractions in the area that drew you there in the first place, quality of the surrounding neighborhood especially if youre renting the property out to other tenants and what the weather/climate is like throughout the year.

For example, you might think moving to Florida sounds great but end up in a town further from the beach than you expected or realize you dont enjoy the heat and humidity. Do your research to find the best place to buy a vacation home before purchasing a property.