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Second homes offer tranquil retreats and get aways from your normal routine or unpleasant seasons. However, it’s important to consider the financial responsibilities that a second home and an additional mortgage will bring.
Although the process of obtaining a second home mortgage can be broken down into the same milestones as a primary mortgage, the qualifications for your mortgage will be stricter.
A second home is a property that you own in addition to your primary residence. To qualify for home financing, your second home may not be used as an investment or rental property.
You may encounter more strict underwriting practices than when you bought your primary residence. When a lender issues a mortgage, they are trusting that you will make your monthly payments. However, there is always a risk for a borrower may default and stop making their mortgage payments. This risk grows when a borrower has another home with an additional mortgage.
Because of the additional risk, a second home typically requires a high credit score and a low debt-to-income (DTI) ratio. Your lender is looking for factors that indicate if your finances can handle additional expenses.
If a borrower were to suffer from financial distress, they are more likely to default on their second home mortgage than their primary residence. Because of this, lenders ask for a larger down payment for a second home. A second home down payment typically ranges from 10% up to 30%. In October 2023, Forbes reported the national average for a second home down payment was 27%.
Creating and sticking to a budget can help you stay on top of the costs associated with an additional home. In addition to your mortgage costs, you’ll also need funds for reoccurring maintenance, utilities, and repairs for both homes.
Your mortgage lender may require cash reserves to ensure you can still make your monthly payments if your income were to change.
Whether you’re looking to finance a primary residence or a second home, we want to help you reach your goals of homeownership. When you’re ready to learn more, contact us today! You’ll be paired with a Licensed Loan Originator that will guide you through the mortgage process.
McGlone Mortgage Group offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.