When buying a second home or an investment property, applying for another mortgage is a bit different than buying your first home. If you are considering buying a second home or buying investment property, such as a rental home, there are a few things to keep in mind
Different Loan Requirements
You’ll will need to be able to cover the down payment (minimum of 20%) and all closing costs to buy an investment property or a second home. This is because mortgage insurance is not available for these types of properties.
If you want to use your property’s rental income to qualify for the loan, then there is an additional requirement of having 2 years of property management experience before being approved.
Additional Financial Responsibilities
Loans for a second home or rental property will usually have a higher interest rate in addition to the larger down payments. There are also different approval requirements.
Investment properties may come with their own additional unique expenses such as homeowners’ association dues, cleaning services, flood insurance, utilities, and some savings built up in the event a tenant needs an appliance or covered service to be repaired.
In most instances, the following are purchased for a second home or investment property:
- Single family dwelling
- Multi-family dwelling
However, certain types of properties, or uses of such properties, may not be available for mortgage or home equity financing. These include:
- Certain manufactured homes
- Bed and breakfasts
If you’re considering purchasing one of these property types, contact our office for financing options.
Using Equity In Your Current Home
If your current home has enough equity, you may be able to use it to buy additional property. Keep in mind that by using the equity in your current home, your home becomes the security for the new loan. If you default on either payment, you could lose your primary residence. Talk to one of our home mortgage consultant for more information about using your home equity to purchase a second home or investment property.