Friday, August 19, 2022

How To Get A Mortgage When You Already Have One

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Familiarize Yourself With Your New States Real Estate Laws

How to get a second mortgage to buy another house (to invest in or move to)

You may have dreams for what youll do with your new property, but your new state may have other plans. All states have their own quirks when it comes to real estate law, so youll want to be familiar with them before purchasing a new home.

Do some research to get familiar with things like zoning laws, building codes, property lines and even fencing in your selected area. That way, you can ensure there are no surprise restrictions when you want to make changes or improvements to your new property.

Your real estate agent and real estate attorney will be good sources to start with for gathering this type of information.

Purchasing A Home When You Have An Existing Mortgage

You may be thinking about buying a second home to use seasonally or as a vacation property. Many people who can afford to pay for two homes find tremendous benefit in using one as an investment or an enjoyable place to get away to each year. To ease the financial strain a second home can create, most homeowners with multiple properties choose to either consolidate their mortgage or make a profit by renting their secondary home when theyre not using it:

1. Rent Out One of the Homes to Vacationers

If your family is only using one home at a time, you may want to consider renting out the second property when youre not using it. Beachfront properties, ski cabins, and other vacation homes are highly sought after during peak vacation season, and many multi-property owners make a profit by renting out their unused homes to vacationers for a week or more at a time. Just make sure the dates youre offering your second property for rent wont conflict with the times you want to use it for yourself.

2. Get a Consolidated Mortgage

If you have the financial means to keep your current home and buy a second, consider getting a second mortgage large enough to consolidate the mortgage of your first home. A consolidated mortgage combines two separate home loans into one monthly payment, which makes it easier to keep track of monthly bills and could help you obtain a lower interest rate.

Income And Job History

One of the first things that mortgage lenders consider when you apply for a loan is your income. There is no set dollar amount that you need to earn each year to be able to buy a home. However, your mortgage lender does need to know that you have a steady cash flow to pay back your loan.

Your lender will want to look at your employment history, your monthly household income and any other forms of money you have coming in, like child support or alimony payments.

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Interest Rates For A Second Home

If youre using cash from your equity to buy another home, make sure you understand how interest rates work on a vacation home, second home, and investment property.

Since this isnt your primary residence, you can expect a slightly higher mortgage rate. This rate increase protects the lender because these properties have a higher risk of default.

Mortgage lenders know that in the event of financial hardship, homeowners prioritize paying the mortgage on their primary home before a second home or investment property.

But although youll pay a higher rate when buying a second home, shopping around and comparing loans can help you save.

So whether youre purchasing another home, or getting a cashout refi, home equity loan, or home equity line of credit, make sure you request rate quotes from at least three mortgage lenders.

Aim For A Larger Deposit

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The more deposit you have, the better mortgage deal youll likely get. Lenders will factor in your deposit when calculating your loan-to-value ratio, which is essentially the size of the mortgage in relation to how much the property is worth and is expressed as a percentage.

So, if you borrow £150,000 for a property worth £200,000, your LTV ratio would be 75% a ratio many lenders favour.

If you dont have a deposit, dont be disheartened. There are other ways you can get on the property ladder, including:

  • Save for a deposit. If youre determined to save up funds to put down on a house,read our handy guide on ways you could do this.
  • Get help from your family. A family member could gift you a deposit, though they would have to declare it as such during your application, and they would have to confirm that the borrower is under no obligation to pay it back. You could also match the amount gifted to you lenders would look favourably upon this.
  • Help to Buy ISA. This is a type of savings product thats designed to help buyers save up for a deposit on their first home. However, its now closed to new applicants find out more in our guide.

If a larger deposit is out of the question, you can get mortgage deals with a higher loan-to-value ratio. You could put down 10% deposit or even no deposit at all, though bear in mind that youll likely pay back more each month. Also, be wary of taking out a loan to cover the deposit lenders wont look upon this favourably.

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I Need Cash To Buy Another Property

Are you thinking about buying more real estate, like a second home, vacation home, or investment property?

In either situation, youll likely need cash for a down payment and closing costs.

You can use your own funds. But if youre short on cash or dont want to touch your personal savings either a cashout refinance or a home equity line of credit can help you buy another property.

The benefit of using a cashout refi to buy another home is that you can lock in a low fixed rate. But it requires you to refinance a portion of your homes current value. So youll have a larger loan amount and pay interest for a longer time likely 30 years.

A home equity line of credit lets you tap only the amount of cash you need. You can also pay the money back and then reuse the credit line. This lets you borrow and pay interest on only the sum you really need.

On the flip side, HELOCs can have higher interest rates than cashout refinancing, and the rate is often variable, which leaves you with less certainty about your future rate and monthly payments.

Getting A Residential Mortgage If You Already Have A Buy

You can take out a residential loan if you already have a buy-to-let mortgage. The deposit for a residential mortgage is typically lower than whats needed for a buy-to-let mortgage.

However, youll need to carefully check to see if your affordability levels will pass all lender checks before applying for another mortgage.

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Benefits And Considerations For Buyers In Higher Price Ranges And A Smaller Down Payment:

  • Always make sure the purchase price and monthly payments are within your comfort level. Just because someone is willing to lend you a certain amount does not mean you can afford it. You know your expenses and cash flows better than anyone.
  • Buyers without 20% will pay a higher interest rate as their loans carry a higher risk. They will also have fewer choices when selecting a lender.
  • Putting less down means having a higher monthly payment. Since youre already carrying your old home, this may put you over the top of allowable debt to income ratios.
  • A possible benefit to this approach is that it may enable you to purchase the home without engaging in some of the riskier strategies involving your current homes equity. When you do subsequently sell the existing home you can take a portion of your actual proceeds to prepay your HELOC, make equity-building improvements, or diversify by investing cash in the market. With this approach, you avoid having to spend down your old homes equity based on projections.
  • In a competitive market, it can be especially difficult for buyers with lower down payment to stand out among stronger offers. Discuss how this may impact your ability to compete with your real estate agent.

What Credit Score Do I Need To Get A Mortgage

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You credit score is the starting point for lenders and if its not high enough, it also could serve as the ending point. Most lenders want a credit score of 680 or higher to start talking about a mortgage. Its possible to get one with a score under that, but it would be a stretch to think youll get a conventional loan from a bank or online lender.

A credit score between 680 and 750 will lower the interest rate and anything above 750 will get you the lowest interest rate possible. If youve stumbled with your credit history and your score is sub-680, you arent eliminated from finding a home loan, but it may cost you more.

Veterans Administration loans, which are reserved for military families, want your credit score to be above 620. The U.S. Department of Agricultures home loans for low-and-moderate income housing in rural areas, also seeks credit scores of 620 or higher. The Federal Housing Administration offers loans to consumers with scores as low as 580.

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Is It Better To Get A Home Equity Loan Or Refinance

The choice between a home equity loan and refinance depends on your financial circumstances.

A cash-out refinance replaces the first mortgage on your home with a new mortgage thats more than the current outstanding debt on your home. You then receive the difference between the existing mortgage and the new mortgage in a one-time lump sum. This option may be best for someone who has a high interest rate on a first mortgage and wants to take advantage of lower interest rates.

A home equity line of credit may be a better option in situations where the homeowner has ongoing financial needs, such as recurring tuition payments or a series of home update projects, and wants to keep drawing money as needed. Its also a better choice if you already have a good rate on your mortgage.

Summary: Youve Got This

If youre feeling overwhelmed or uncertain, the best thing to do is to talk to a mortgage professional who can answer your questions. They can tell you what kind of mortgage you qualify for, which can narrow down the home shopping process.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Read Also: Rocket Mortgage Loan Types

Juggling Two Mortgages When Buying A New Home

Buying a home is challenging enough. Buying one while selling the home youre still living in? Thats even more of a challenge. Unless youre able to sell your existing home before making an offer on what you hope will become your new one, you might need a high enough income to prequalify for two mortgage payments a month. If you dont make this much money, you might lose your potential dream home to other buyers.

Its long been a challenge for homeowners who are selling a residence while looking for a new home at the same time: How do they handle their existing mortgage when applying for a new home loan?

Usually, borrowers will qualify for their new loan contingent on the sale of their current one. This means that their lender wont release the mortgage funds they need to buy a new home until the borrowers sell their existing residence.

Homeowners will then have to make what is known as a contingency offer on the residence they want to buy. The contingency will state that these buyers wont be able to close the sale until their own property sells. This can be a tough sell in strong real estate markets: Sellers might receive other offers from buyers who can purchase their homes immediately. Most sellers will take these offers instead of one with a contingency attached.

Applying For The Loan

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Starting the process of pursuing a second loan may seem similar to what you went through when you sought your first loan, because it is. Shop around for the mortgage terms for your second loan, just as you did for your first mortgage. And run the numbers just like you did the first time. It’s always worth knowing your options in the topsy-turvy housing market. The process ensures that your mortgages are managed as savvily as the rest of your portfolio.

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How To Buy A Second Home And Rent The First

Buying a new home and renting out the first is a straightforward process. Hereâs what you must do:

  • Work with a real estate agent to find a second home
  • Buy with cash or get approved for a mortgage
  • Make sure there are no owner-occupier restrictions on your first mortgage
  • Check that your homeowners association allows rentals
  • Investigate your first homeâs local laws
  • Let your insurance company know youâll be renting out your home
  • Let the renter move in
  • Overall, as long as you check with your lender, local government, homeowners association, and insurance company about any restrictions, renting out your first home is simple.

    Why would anyone object to you using your property as a rental? FHA loans, for example, specifically restrict homeowners from renting out their properties in order to prevent FHA-insured loans from being used for investment properties. Homeowners associations may also be hesitant to allow you to rent out your property because renters have a smaller investment in the home and could end up lowering the homeâs value through improper care.

    Learn more: How to Buy a Second Home and Rent the First Out

    Choose The Right Loan

    There are several loans you can and cant use to buy a second home. For example, you can take out a jumbo loan but usually cant take out an FHA loan or a VA loan.

    Additionally, there are different financial factors that lenders take into consideration when evaluating someone for a loan on a second home. For example, theyre stricter on a persons debt-to-income ratio and credit score.

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    How To Get A Down Payment When Buying A House Before Selling Your Own

    Buying a home before selling your old one is undoubtedly a risky endeavor. What if your current home doesnt sell as quickly or for as much as you planned? Although theres an inherent risk involved with this method, in a sellers market, theres less risk involved in most cases.

    There are two big roadblocks individuals in this situation often face:

    • Coming up with a down payment
    • Staying within an acceptable debt to income ratio while carrying both properties

    Keep in mind that many of the options to help solve problem #1 will hurt your efforts in solving problem #2. Work with your financial advisor to review your options and discuss how a particular strategy may impact your overall situation before taking action.

    Is Buying A Vacation Home A Good Investment

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    Real estate is generally considered a good investment across the board and vacation homes are no exception. If you buy in an area with a good long-term outlook, you may be able to profit when it comes time to sell. In addition, you can rent out your second home when youâre not using it as a passive income source.

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    How Do I Start My Mortgage Application

    The application for a mortgage is similar to what happens in the pre-qualifying process and virtually identical to what is needed in the pre-approval process.

    The basics for the mortgage application process are the same as its two siblings name, current address, household income and expenses the lenders just dig a little deeper knowing you are now ready to sign a contract.

    You will need paperwork to back up things like:
    • Employment history. Have recent paycheck stubs , W-2s and federal tax returns for the last two years. If you own a business, have your 1099s or profit and loss statement.
    • Youll need bank statements and paper statements for IRAs, stocks, bonds, CDs or any other securities.
    • Real estate holdings. If you own a home, and a second home or rental property, have documents that verify addresses and current market value If you have mortgages out on the property, provide paperwork that includes the lenders name and address the loan number, how much you still owe and what your monthly payment would be.
    • This obviously is an important area, particularly in verifying. List credit cards, mortgages, auto, student or personal loans with the names and address of the creditors, the account numbers, balance on the account and minimum monthly payment. If you make alimony or child support payments, list those.

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    Getting A Mortgage: Ten Tips For Holiday Let Landlords

    Getting a mortgage approved for a holiday let can be trickier than on a main residence

    1. Be aware that many holiday let mortgages require a landlord to have a mortgage, own their main residential property first, or have buy to let properties already and in some instances, a combination of these

    2. Understand that some lenders also have age restrictions for first time landlords, even if they are already a residential homeowner

    3. Affordability assessments for holiday let properties is usually calculated on the propertys rental potential rather than personal income and outgoings, but the lender will still want to understand the applicants financial position

    4. Applicants may have to demonstrate a minimum income set by the lender but this income can often be from a combination of employment, self employment, investments, pensions etc

    Buyers should check whether homes on holiday parks breach their lenders terms and conditions

    5. Be prepared to show third party evidence of rental value in low, mid and high seasons from a verified lettings agent even if not planning on using an agency to manage the property

    6. Expect that the property will also be assessed by the mortgage lender. Properties in holiday parks, caravans or lodges, and those of unusual construction method may not always be accepted

    7. Applicants should not assume they can market their property on short term lettings sites such as Airbnb and Vrbo some mortgage lenders have certain rules that prohibit this

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