When someone says they have a second home, the first thought the person has is that they must be very wealthy. This actually is not always the case. Some people purchase a second home because they haven’t been able to sell the one they have now. Others buy homes to fix them up and sell them for more money. If you are thinking of buying a house, realize you’re going to be paying a second mortgage. Here are some things to think about.
You are going to need to get a loan; recognize that it is not easy to get a bank to loan you money for a second house. It's far more difficult to get a loan for a secondary residence, than it is to get a loan for a primary residence. Banks will want to see that you have about 6 months of mortgage payments for both houses before they will approve you for the loan. Obviously, its a risk for a bank to loan you money for a home when you haven’t paid off the first one you bought.
You’re also going to have to pay a higher down payment than you did for your first house. Probably about 29% more. You also can’t be in too much debt. If you are using 56% of your available credit right now on your credit cards, the bank may even laugh that you are asking for a loan on a second home when you are over half the limit on your credit cards.
Letting the bank know that you have plans to rent the home after you buy it, might sway their decision some. However, don’t lie about it. Only say so if you’re honest about fixing it up to sell or rent out. Your mortgage is also going to be higher, so you are going to need to make more money than you are right now. Consider getting a better job or asking for a big raise at work.
Do not take the matter that you are going to be maintaining two homes lightly. It is a huge undertaking. Be aware that after you fix the house up, it might not sell or rent for a while. Don’t expect that right when you finish the renovations, that you’re going to get an offer in the next day.
If you’re going to be relying on rent to make mortgage payments, you need to reconsider buying the house. Renting is unpredictable. Even if you have a tenant, they could also leave at any moment regardless of what’s in their lease. Expect to have some awful tenants over the years. You never know who is moving into your apartment, no matter how great they look on paper.