Are the costs, maintenance, and excitement of owning one house enough, or do you want more?
Once buyers settle into their first property and start to make mortgage payments, they may find themselves wanting to go through the whole process again. But the road to becoming a property owner isn’t always as smooth the second time around. If you want to buy another house, use this guide to figure out if you are ready to take the next steps.
Why do buyers want a second house?
Secondary homes can serve many purposes depending on the owner’s lifestyle. They may decide to renovate a fixer-upper and sell it back for money as a job or as a hobby. Buyers often cite one of the following reasons for buying a second property:
- To invest in property
- Enjoy a vacation home
- Have multiple homes while traveling for work
- To expand their current property (by buying a house next door)
- Save money around tax season
- Have a standby in case of emergencies
- To convert their current house into a rental or investment property
Buyers have many motives behind buying a second house. These buyers may also be in different places financially. Many homeowners ask, “Can I qualify for a mortgage when I already have an existing mortgage?”
The answer is yes!
Pros and Cons of Taking On a Second Mortgage
Just because the opportunity is present doesn’t mean you should jump to buy another property. Buyers should consider the pros and cons of taking on a second mortgage before they take the next steps to apply for a home loan.
Pros of Buying Another House:
- Investment and rental opportunities
- Ability to build, create, or renovate a property for use after retirement
- If the market is good, you would otherwise miss out on the chance to buy a home for a more affordable price
- Improves quality of life for yourself and your family
Cons of Buying Another House:
- Increased debt
- Extra costs that come with a second house
- Decreased ability to apply for additional loans
- Additional time (and money) spent on administration, repairs, chores, etc.
This is just a taste of the factors you must consider before buying a second house. Talk to a real estate agent or financial advisor before you take the plunge. If the pros outweigh the cons, it’s time to take the next steps toward owning a second property!
How To Qualify for a Second Mortgage
Review your current mortgage.
There are many opportunities for home buyers to receive an affordable mortgage—provided they use that mortgage to buy an owner-occupied home. If you buy an investment property, you will not be able to get the same deal on your mortgage. If you’re buying an owner-occupied house and renting out your first property, you may have to talk to your mortgage lender.
It is possible to keep your existing mortgage if you are changing the status of your house, but you may have to pay a penalty. Other lenders will require borrowers to wait before they buy or refinance.
Buying a second home naturally comes with higher fees and higher qualifications for buyers. Lenders see more risk when buyers take on another mortgage and pile on more debt. They might offset this risk by charging a higher interest rate or requiring the borrower to pay mortgage insurance.
Before you apply for a mortgage, consider extra costs that come with owning a second property:
- Monthly payments (including mortgage insurance)
- HOA fees
- Property taxes
- Landlord’s insurance (if you are renting out one or more of your properties)
- Costs to prepare your property for renters (inspections, repairs, listing fees, etc.)
- Costs of existing debts (student loans, credit card balances, etc.)
Applying for a second mortgage is very similar to applying for a first mortgage. Lenders will consider your credit scores, debt to income ratio, and other factors before approving the loan. Have your budget in order before you start shopping.
Start renting your first property (if you plan to).
If you are considering renting out your first property, start as soon as possible. Property owners can use rental income to offset mortgage debt and get a better deal on their mortgage. Mortgage lenders will also consider home equity when they calculate mortgage debts and payments.
Interested in learning how to buy a second home and rent out the first? Check out our recent blog post.
Buying a new home or investment property is an exciting next step in your future. With proper preparation and budgeting, you can enjoy all the benefits of owning multiple properties. Talk to a real estate for more information about how you can qualify for a second mortgage and buy another home today.