4 Tips when Shopping 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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