Getting Your Second Home Financed

When it comes to getting a loan for your home you’ll find that recent years have made interest rates and buying markets prime and a lot of banks and other institutions are going to be more than willing to hook you up. But if you’re hoping to get a second home or buy a mountain cabin property the financing is much harder to come by. Why is this? For many reasons including these:

There are enough underwater mortgages on second homes to make banks more than a bit wary.

Second homes have a lot of restrictions on them that many people do not know.

If you’re buying a second home then your putting yourself at greater risk for not being able to pay, seeing as how it is your second mortgage and not your priority.

This can of course make it difficult to feel you’ve got any chance of getting that dream home property, but where there is a will there is a way.

One of the biggest frustrations for people is the complicated nature of actually determining what properties are categorized as second homes. Here are some commonly confusing but essential elements to the definition of a second home:

Distance is Pivotal:

If you want a second home that is within an hour of your first home, you may have a hard time convincing lenders to approve the loan. Getting property that is “beach front” or “lake property” can be in your favor.

Single Unit Property:

You cannot be buying a property with more than one unit for living as these will be considered investment properties.

You Have To Plan on Living There:

If you’re the one borrowing the money then you have to live there. Investment properties or property intended for renting will be denied as second home residences.

The best thing you can do for yourself is clarify whether you’re intending to purchase a second home for vacations and personal use or if you’re purchasing an investment property. If you don’t plan to live there (even if your college-age kids are they are not you) then it’s an investment property. If you realize you’re looking to get an investment property then you’ve got a completely different project ahead of you.

Many buyers themselves will tell you quickly that you’re more likely to get a second home financed if you go with local lenders. Small local lenders naturally feel a greater sense of community, they often have better terms and interest rates as well. Try to find a lender who is near by the property you are going to be buying, especially in the case of a more remote recreational property, they may rely on these mortgages to stay afloat, which means they’re more likely to approve your loan.

Understand that when you are financing a second home you need to have a surplus of income to cover the expenses, including the mortgage, taxes (though you do get tax benefits from having a second home) and upkeep of that home. Many financers will require that you pay a much larger down payment to prove you have the longevity and finances to be good for the loan. There is an option for those who have equity on their primary residence called a “home equity loan” you might also be able to get a line of credit based upon that equity.

The most important decision you need to make is one where you seriously consider how much property you can actually afford. Don’t stretch your resources to thin to buy a mountain mansion, be satisfied with a small family cabin and you’ll get both a second or vacation home AND you’ll be much safer off financially.