Why buy a second home? Homeowners enjoy the extra space and versatility a vacation home can offer, need to host dependents or family, or sometimes need to accommodate a consistent business travel schedule. Before you decide to apply for a second mortgage, educate yourself about the basics of financing.
First, a second home is different than an investment property: you will not be renting it out or acting as a landlord, you will be spending a great deal of time occupying the space per year, and the property must be miles away from your primary residence. If your long term goal is to receive monthly income from this property, it will need to be classified as an investment purchase.
Eligibility for financing a second home:
· Cash reserve for mortgage payments, taxes and insurance for 6 months
· Generally should be about 50 miles or farther from primary residence (varies)
· A 20% down payment is most preferred
· Debt-to-income below 45%, including the new loan
· Cash Purchase
· Hybrid Mortgage
· Cash-Out Refinance
· FHA loan for new primary residence
Second mortgages have stricter requirements than their primary counterparts, and the extra responsibility of more money per month can be difficult to juggle unless your cash flow is steady. In order to evaluate the best option for you, speak with a qualified mortgage professional.