Purchasing a second house or condo is a worthwhile investment for those who want a vacation home or an extra income stream. However, getting a mortgage on this property is different than buying a primary residence. Understanding the unique circumstances will help you find the right home loans and navigate the process efficiently.

Benefits of Owning a Second Property

You and your loved ones can use it when traveling, which saves money on hotels and provides a more comfortable atmosphere. Also, you can rent out a second home to generate income. You might do this on occasion when you’re not using it, or consistently to produce enough to cover the cost and earn extra money on top. Owning also constitutes a long term investment, since you can sometimes sell the home later on for an increased price.

Differences Between Financing Vacation Properties & Rental Properties

When buying a vacation home, you must prove to lenders that you can afford that mortgage on top of your primary residence. This often means lower interest rates because there’s less risk for the lender. When buying a rental property, you can use income projections based on similar homes in the area to qualify for a house that you couldn’t otherwise afford. However, you shouldn’t stretch yourself too thin, as defaulting on this mortgage is costly.

What You Need to Qualify for a Second Home Mortgage

The requirements to buy a second home are more significant than those involved in purchasing a primary residence because you must prove the ability to afford both properties. Generally, you’ll need a down payment of at least 10 to 20%. You may also need cash reserves that can cover a few months of mortgage payments. Additionally, lenders will look at your debt to income ratio—including your primary mortgage—to see how many lines of credit you have.

What Loan Options Are Available?

Government loans are only available to those purchasing a primary residence, so anyone seeking a mortgage on a second home will need a private lender. Private mortgage lenders offer home loans with standards set out by the Federal Housing Agency. Some buyers also opt to use a home equity line of credit from their primary residence as collateral for the second home.

If you’re looking for home loans for a vacation or rental property, contact Fairway Independent Mortgage Corp. - The Sharon Thompson Team. This mortgage lender serves customers throughout the Foley, AL, area, offering home loans, reverse mortgages, and mortgage refinancing. The team takes pride in providing individualized and friendly service to each customer. Visit the website to see a full list of services. To request a consultation, call (251) 298-5304.