Excerpt from: Buying and Owning a Second Home
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| January 14, 2009 | | Buying a second home is a little more difficult in this economy | One of the most rewarding things is owning a second home in a beautiful location where you and your family like to vacation. Unfortunately, it's not always easy to get approved for a second home mortgage. In fact, even during the best of times the application for buying a second home is going to get more scrutiny. In this economy, you are going to have to meet even stricter standards.
Home equity loan: No longer helpful
One of the most common ways to obtain a down payment for a second home mortgage was to use the equity in your first home. With home values falling, obtaining a new home equity loan is difficult, and if you already have a home equity line of credit, it might be restricted. So this traditional avenue is mostly closed in many cases. But it doesn't mean you'll be rejected.
Prove you can afford buying a second home
Mainly, you will have to prove that you can afford buying a second home. You will need to have the income to show that you can handle two mortgage payments. (If you can refinance your first mortgage to a longer term and lower payment at these interest rates, it can help.) You may also have to have a substantial down payment. And you will definitely have to have a good credit score -- at least 680 and probably above 720, especially if you want the best interest rate.
If you want to rent out the second home when you are not there, you will need to prove that the home will offer a decent cash flow -- particularly if you are counting on the rental income to make up any difference you have with regard to income requirements for mortgage loan approval.
It's not easy to get approved for a second home mortgage in this economy, but it is possible. But buying a second home will require finding a good deal and a mortgage you can afford.
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