If you are thinking of buying a second home, you want to consider a few things. (iStock)
Entering the real estate market for any buyer is a big step, let alone a second property.
Getting a second mortgage can be a lot of financial pressure, but if you are planning to move, the current low mortgage rates may make it the perfect time to do so. The first thing you need to do is compare rates and mortgage lenders. The multi-lender website Credible offers daily rates so you can stay up to date with the latest trends.
After comparing rates and lenders, you can go through the following checklist to ensure that you make the best financial decisions before entering into a second mortgage.
What to know when buying your second home
If you are considering a second home purchase, there are some unique considerations to consider before moving on.
1. You do not have to pay off your first home to buy a second property
You can take out a second mortgage, even if you have not paid off your primary residence. If you can pay cash for your second property, you will have no problems. However, if you need to take out a second mortgage, you should be eligible for a new loan, and your lender will consider your current loan payments when deciding to offer you a loan.
You can explore mortgage options by visiting Credible to compare rates and lenders.
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2. Make sure you save more money for your second property
Owning a second home costs you more money. In addition to monthly payments, you should consider a maintenance budget, taxes, and property insurance. Even if you can afford a second mortgage payment, you should not include other expenses.
If you want to rent out the house, you may need to clean, repair or repaint. If you are planning to use the second property as a holiday home, you may need to set aside funds to furnish the house.
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3. Do you have enough to save for retirement and pay for both properties?
While considering a second mortgage, make sure you set aside enough money to finance your retirement. Can you continue to fund your IRA or 401 (k) plan and pay for a second mortgage? Deducting money from your retirement investments can be dangerous, especially if you are approaching retirement age.
You may be considering refinancing your mortgage on your first home loan. After all, it can lower your monthly payments, reduce the duration of your loan and change the term of your loan, but you need to do your research. Visit Credible to see if you can save money with a refinance before taking any major steps.
Make sure you use an online mortgage calculator to determine potential monthly payments so you can make an educated decision.
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4. Remember that the real estate market fluctuates
Although investing in real estate can be a lucrative business, the real estate market does fluctuate. A number of uncontrollable factors (from pandemics such as the coronavirus to political unrest and local ordinances) can affect the housing market.
At the moment, the housing market has remained ‘strong’ and mortgage rates continue to fall (although they fluctuate frequently). To take advantage of today’s low rates, go to Credible to begin your mortgage application process.
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5. Do you want to become a landlord?
Buying a second property as an investment can create a second source of income, but it can be a lot of work. Do you want to manage tenants and field complaints or repair requests? Can you afford to hire a management company to handle any of the tasks? If you can find reliable tenants, a second property can be an excellent investment. Difficult tenants may, however, advise you a second time about your purchase.
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How else can I take advantage of low interest rates?
Interest rates are at their lowest level, thanks to the actions taken by the Federal Reserve in March 2020. These low rates can benefit homeowners if they want to consider refinancing or a second mortgage on their primary residence.
Here were the average interest rates at the time of publication:
- 30-year fixed interest rate mortgage: 2.72%
- Fixed interest rate mortgage of 15 years: 2.28% (with almost a full percentage lower than last year)
With loan rates below 3%, now is a great time to take out a mortgage. With Credible you can find the best mortgage rates and qualify for a home loan within minutes.
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A second mortgage converts the capital you have in your property into money that you can use for other expenses. A second mortgage uses your home as collateral so you can risk losing your home if you are unable to pay. Second mortgages usually come in the form of a home loan or a line of credit.
Alternatively, you can refinance your home loan to lower your interest rates and monthly payments. Whether you are refinancing your home or taking out a home loan, you have to pay the loan fee. You may also have to pay for a property value assessment.
New home refinances of more than $ 125,000 will also be subject to an unfavorable market fee of 0.5% of the total loan. You can explore your mortgage refinancing options by visiting Credible to get personalized rates without affecting your credit score.
To be eligible for a second mortgage or refinance, you need good creditworthiness, equity in your home and a low debt-to-income ratio. You should also use an online mortgage calculator to determine if the cost of a refinance or second mortgage is worth it.
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