If you are thinking of buying a second home, there are a few things to consider. (iStock)
Entering the real estate market for any buyer is a big step, let alone acquiring a second property.
Getting a second mortgage can be a big financial strain, but if you are planning to make a change, current low mortgage rates may be the perfect time for that. The first thing you should do is to compare rates and mortgage lenders. The website of several Credible lenders offers featured daily rates so you can stay on top of the latest trends.
After comparing rates and lenders, you can refer to the following checklist to ensure you are making the best financial decisions before making a second mortgage.
What to Know When Buying Your Second Home
If you are considering buying a second home, there are some unique considerations that you should consider before proceeding.
1. You don’t have to pay your first home to buy a second property
You can take out a second mortgage, even if you haven’t paid your primary residence. If you can pay for the second property in cash, you will be fine. However, if you need to take out a second mortgage, you will need to qualify for a new loan, and your lender will take current loan payments into consideration when deciding to offer it.
You can explore mortgage options by visiting Credible to compare rates and lenders.
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2. Make sure you save more money for your second property
Having a second home will cost more money. In addition to monthly payments, you will need to consider a maintenance budget, taxes and property insurance. Even if you can afford a second mortgage, be sure to consider other expenses.
If you want to rent the house, you may need to clean, make repairs or repaint. If you plan to use the second property as a vacation home, you may need to set aside funds to furnish the home.
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3. Do you have enough to save for retirement and pay for both properties?
While considering a second mortgage, be sure to set aside enough money to finance your retirement. Can you continue to fund your IRA or 401 (k) plan and pay for a second mortgage? Taking money out of your retirement investments can be risky, especially if you are close to retirement age.
Perhaps you are considering refinancing the mortgage on your first home loan. After all, it can reduce your monthly payments, shorten the life of your loan, and allow you to change the loan term – but you need to do your research. Visit Credible to see if you could save money on refinancing before taking any major steps.
Be sure to use an online mortgage calculator to determine potential monthly payments so that you can make an informed decision.
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4. Remember that the housing market fluctuates
While investing in real estate can be a lucrative venture, the real estate market fluctuates. Any number of uncontrollable factors (from pandemics like the coronavirus to political unrest and local decrees) can affect the housing market.
At the moment, the housing market remains “strong” and mortgage rates continue to fall (although they fluctuate regularly). To take advantage of today’s low rates, go to Credible to start the mortgage application process.
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5. Do you want to be an owner?
Purchasing a second property as an investment can create a second source of revenue, but it can be a lot of work. Do you want to manage tenants and field complaints or repair requests? Can you hire a management company to handle any of the tasks? If you can get reliable tenants, a second property can be an excellent investment. However, difficult tenants can make you guess your purchase.
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How else can I take advantage of low interest rates?
Interest rates are at record levels, thanks to actions taken by the Federal Reserve in March 2020. These low rates can benefit homeowners who are considering refinancing or a second mortgage on their primary residence.
See where the average interest rates were at the time of publication:
- 30-year fixed rate mortgage: 2.72%
- 15-year fixed rate mortgage: 2.28% (down almost a total percentage from last year)
With loan rates below 3%, now is a great time to take out a mortgage. With Credible, you can find the best mortgage rates and qualify for a home loan in minutes.
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A second mortgage turns your equity into cash that can be used for other expenses. A second mortgage uses your home as collateral, so you risk losing your home if you can’t make payments. In general, second mortgages come in the form of a home loan or a home credit line.
Alternatively, you can also refinance the mortgage loan to lower interest rates and monthly payments. Whether you refinance your home or take out a home value loan, you will need to pay the loan origination fees. You may also need to pay for an assessment of the property’s value.
Refinancing new homes of more than $ 125,000 will also be subject to an adverse market rate of 0.5% of the total loan. You can explore your mortgage refinancing options by visiting Credible to get personalized rates without affecting your credit score.
To qualify for a second mortgage or refinance, you will need a good credit score, equity in your home and a low debt ratio. You should also use an online mortgage calculator to determine whether the cost of a refinance or second mortgage is worth the effort.
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