Friday, 19 Jul 2024

How to Purchase A Second Home?

Homeowners choose a second home for a variety of reasons. Maybe they want to provide space for visiting family members, or they want to provide a rental home for local residents. A second home could give them a second place to live during different seasons. The opportunity gives them a chance to invest in real estate and maximizing their returns on their investments.

A Review of Their Credit Ratings

When attempting to buy a second home, the borrower must have qualifying credit scores. Typically, a conventional mortgage will require higher credit scores. The borrower must review their credit history of any issues and eliminate errors by filing a report with each credit bureau.

The base credit score they can have to get a conventional mortgage is 620, and this doesn’t ensure that the borrower will get a mortgage. Paying off all negative listings improves their credit ratings and gives them a better chance of getting a mortgage for a second home.

Establishing How They Will Use the Second Home

The borrower must determine how they will use the second home before they buy it. This could determine what mortgages are available to them and if they have to get a commercial mortgage instead of a residential mortgage. For example, if they want to rent out the property, this could be perceived as a business venture, and they will need a commercial loan to secure the real estate.

Are There Restrictions for Mortgages?

The FHA mortgage program imposes some restrictions on buying a home. For instance, if a borrower wants to purchase a second home, they must live in the home at least 50% of the time, or they cannot claim it is the primary home. They cannot get an FHA mortgage for a home that they will rent out or that someone else will live in.

What Type of Down Payment Can They Expect?

When buying a primary home, the borrower will pay 10% down for the property. However, since they are buying a second home, the borrower must pay at least 20% down to secure the mortgage.

If they have a higher debt volume, the lender could increase the down payment to 25%. The buyer’s current income, credit scores, and debt-to-income ratio determine if they are eligible for the mortgage. Home buyers can get help from Dustin Dimisa when they are ready to buy a second home.

What Insurance Will They Need?

When purchasing a second home, the buyer will need to get homeowner’s insurance coverage for the property. If the property is in a designated flood zone, they will need a supplemental flood policy to protect the property more fully against flood damage. Mortgage insurance is also a requirement for most lenders even if it is a second home.

Home buyers can find financing for a second home by reviewing current mortgage programs. Since it is a second home, they are less likely to get an FHA mortgage, but conventional mortgages are available with 20% down. Home buyers can learn more about financing a second home by contacting a lender now.