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.
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.
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.
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.
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.