Second Home Mortgage Loan Tips

Tips for a Second Home Mortgage Loan

Getting a second home mortgage loan can sometimes be more difficult than people realize. However, people get mortgages for second homes all the time. Here are a few tips to keep in mind when shopping for a second home mortgage loan.

1. Pay Down Credit Cards

If you have any credit card balances, you might want to think about paying them off before you start shopping for a second home mortgage loan. Lenders are much more strict about how much debt you can have with a second home mortgage. Therefore, you should do everything that you can in order to lower your debt-to-income ratio. Otherwise, you may not be able to get approved for the loan that you need.

2. Compare Closing Costs

When you are shopping for a second home mortgage, you should be sure that you compare all of the closing costs between the lenders. Closing costs can be a substantial part of the cost of getting a mortgage. Therefore, you want to make sure that you are getting the best deal that you can on these costs. Most of the time, it will amount to several thousand dollars worth of closing costs that you have to pay. When you get your good-faith estimate of closing costs from a lender, you should use that to your advantage. Take it into other lenders and see if they are willing to negotiate the price of their closing costs based on the lowest estimate that you have gotten.

3. Build up Your Savings

Before you can get approved for a second mortgage, you will most likely need to have some savings built up. Lenders are very strict about the amount of liquid assets that a borrower must have in order to qualify. They will want to see that you would be able to pay for the mortgage for your primary and secondary homes if you were to lose your income. In most cases, they will want to see that you can sustain the mortgage payments for both properties out of your savings for at least six months. Therefore, you may need to start saving early in order to have enough money built up to qualify for a mortgage.

4. Be Careful with Terms

When you are shopping around for a mortgage, you need to keep in mind that the terms of the loan are very important. Even though you are trying to save as much money as possible on the mortgage payment, you should not get involved with any mortgages that could get you in trouble financially. Make sure that you are comparing apples to apples when you look at two different mortgages. For example, you might be looking mostly at 30-year fixed-rate mortgages. Then, another lender gives you a quote on an interest-only loan that provides you with a much smaller payment. Although the payment is smaller, you will have to make a balloon payment at the end of the loan and pay off the entire balance. Therefore, this loan could get you in some serious trouble.

 

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The Challenges of Getting a Mortgage Loan for a Second Home

When getting a mortgage loan, second home purchases make the process much more difficult. While it is relatively easy to get a mortgage for your primary residence, there are more challenges getting a mortgage for a second home. Here are a few things to consider when trying to get a mortgage for a second home.

Credit Score

In order to be able to secure a mortgage loan for a second home, you will need to have a very good credit score. In most cases, lenders will require you to have a better credit score than if you were just applying for a primary mortgage. Therefore, you need to make sure that your credit score is in good shape before applying for a second mortgage.

Increased Income

Lenders will also want to see the you have a substantial amount of income coming in. The income requirements will usually be much higher than they would be with a normal mortgage. In most cases, you will have a mortgage on your primary residence and a new mortgage to take care of. Be sure that your income is high enough to cover both your principal residence and your second home mortgages. Also, be sure that you have sufficient money to cover all your monthly debt obligations, such as credit card payments or car loans.

Liquid Assets

The liquid assets requirements are typically what give borrowers the most trouble when applying for a second mortgage. You will need to have substantial amounts of liquid assets in order to be able to qualify. Each lender will be different as far as how much will be required. Most commonly, lenders require that you have enough money in reserves to cover six months worth of mortgage payments for both properties. Therefore, you may have to start saving up some money before you can qualify for this type of mortgage.

Cash Flow Statement

Many people intend to purchase a second home and rent it out. Whether it is a vacation home or a traditional home, this could provide you with some significant cash flow. However, lenders will want you to be able to prove that you can generate cash flow from the property. You will need to look at similar properties and develop a cash flow statement that you can show to the lender. They will look at the cash flow statement and try to evaluate whether it looks like a sound investment. Many lenders are very leery to invest money into a rental property. They have trouble selling these mortgages on the secondary market. Therefore, you are going to have to be able to prove that significant cash flow can be produced.

Property Condition

In addition to looking at your financial situation, the lender is also going to want to take a good look at the property itself. They will need to appraise the property and make sure that it is in good condition. They do not want to invest money in a mortgage for a second home that is not in good shape. It can be difficult to obtain a mortgage for second home if the house is a fixer-upper.

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What is a Mortgage Loan Officer?

A mortgage loan officer is someone who works at a lending institution and is responsible for approving home loan applications. The loan officer will approve a loan based on their comprehensive knowledge of the qualifications an applicant must have to obtain an approval.

Approval

Creditworthiness is one of the major factors a loan officer will use to approve a loan. If approved, the loan officer will then assess an applicant’s financial situation and decide how much money can be borrowed. The officer will also determine what interest rate will best meet the borrower’s needs.

Expertise

This is why an officer should also be an expert in the loan products their lending institution has to offer. This information is invaluable to applicants who have a unique home buying situation, and need a specific loan product to achieve their financial goal. Sales skills are also vital for loan officers to have since other banks are competing for the same business. Most loan officers must solicit consumers to earn a pay check since they are paid 100% through commissions. Loan officers can take on as many loans as they can handle and will work long hours to complete their workload. When interest rates are at their lowest, there is usually a surge in loan applications, creating more business for the loan officer.

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