For those looking for a weekend getaway, a second home is ideal for getting a change of scenery without missing the comforts you’re used to. Your vacation home is also the perfect place to retire. When you’re ready to purchase another property, consider these guidelines for qualifying for a second loan. 

How Do You Qualify for a Second Home Mortgage?

Typically, lenders will want to make sure you have enough assets to cover your mortgage payment, even in the event that your source of income is interrupted. If you have a high income, lenders will likely want to ensure you have at least 2 months of payments in your assets. For those who are self-employed or have a lower income, they might want to make sure you have up to 6 months in payments. You’ll want to document your assets, so you can show proof of your cash reserves.

Additionally, lenders look for candidates with strong credit scores. Usually, credit score requirements are higher for second mortgages because lenders want to see evidence that you’ve been responsible with your finances and payments, and can therefore handle another ongoing expense. You’ll also need a strong debt-to-income ratio, especially for those looking to limit the percentage of their income that their mortgage payments take up.

How Are Rental Properties & Vacation Homes Financed Differently?

If you’re able to afford your second property without requiring rental income, purchase it as a vacation home. In addition to getting a better mortgage interest rate, the process of qualifying will be fairly straightforward and similar to purchasing your first property. 

If you need rental income, you’ll have to finance it as a rental property. As a result, your lender will want an appraisal and rental schedule to understand the property’s future income. Typically, lenders allow around 75% of rental income to go to the borrower and add the monthly costs (mortgage payments, taxes, insurance) to your expenses in your debt-to-income ratio. Investment mortgages require at least a 20% down payment.

If you’re looking to take out a second mortgage, visit the trustworthy professionals at First & Peoples Bank And Trust Company in Greenup County, KY. They offer a range of banking services to the community, including business and personal loans. Call (606) 836-0211 to speak to their knowledgeable team about your banking questions. Learn more about their personal loan options online.