A growing number of people are seeing the benefits of securing a mortgage loan for a second home. This additional dwelling can bring in rental income or be used as an affordable vacation getaway. If you’ve been thinking about exploring these types of opportunities, here is a helpful guide on what you need to know.

What to Know About Second Home Mortgages

Benefits

One of the main benefits is using the home as a rental property. Depending on the house, you can lease each room to tenants and collect monthly rent. These funds can be used to pay down the mortgage to the point where you would just be responsible for the property taxes and upkeep. Another benefit is always having an accessible vacation home. No need to worry about booking reservations in advance or paying exorbitant hotel fees. You can also lease the second home to other vacationers.

Financing

Whether the second home will be used as a vacation or rental property, there are typically three ways to finance it: a conventional mortgage loan, a home equity line of credit on an existing house, or a cash-out refinance on your main home. For vacation purposes, lenders look at your credit score, down payment, and debt-to-income (DTI) ratio to determine if financing is feasible. For rental purposes, you might be eligible to put off your monthly mortgage bill until you have secured tenants. Some lenders may also offer lower interest rates if the property will be rented out.

Qualifications

Mortgage loans for second homes used as rentals typically require the applicant to have a good credit score and at least a 20% down payment. When calculating your DTI, the monthly mortgage amount and taxes are reviewed to determine if you meet the lender’s threshold. To qualify for a vacation home, you will generally need at least two to three months of reserves. In both rental and vacation financing, your income and assets are also important factors.

Magnolia Bank in Hodgenville, KY, is your trusted source for second home financing. The team of experienced and friendly mortgage loan lenders will walk you through the process and answer all your questions about the application and financing procedures. To get started, call (270) 358-3183 to schedule a consultation. You can also visit the website to learn more about the bank’s full suite of loans and other products and services.