Being a dual-homeowner might sound like a title reserved for the wildly rich. It’s not. Sure, there are those folks who simply want an exotic getaway all their own. But, there are plenty of homeowners who buy a second home for other reasons. Sometimes homeowners have trouble selling their first home and need to move anyways. Some homeowners might be interested in buying a second home so they can fix it up and sell it for a big profit. Others might want to use it as a rental property.
A second home can be a great thing if you’re purchasing it for the right reasons and are prepared financially. However, it can also put you in a world of financial hurt if you’re not. When you’re considering taking on a second mortgage, consider these two major factors.
You need enough money.
While you don’t need to be part of the 1% to own a second home, you do need to have solid financial footing to qualify for a second mortgage. If you’re just “getting by,” a bank isn’t going to consider you a good risk.
You can’t have too much debt.
A second mortgage is more debt. When you apply for your second loan, your lender is going to take into account the debt-to-income ratio as they did with your first. In most cases lenders want your debt – this includes mortgage payments, credit card bills, car loans, and student loans – to not exceed 42 percent of your income.
The mortgage payment on your second loan will most likely be higher than it would be if you just had one home. Why? For the simple fact that you typically won’t receive as low an interest rate on your second mortgage because you are considered a riskier borrower.
Curious if you’re ready to take on a second home? Contact Rob today!