A second home mortgage is a big decision–and one that comes with a few more considerations than a first home mortgage. Here are a few things to keep in mind before you make the jump into owning a second home.

Credit Score

If you are thinking about purchasing a second home, it is important to understand the factors that will affect your ability to obtain a mortgage for this property. One of the most important considerations is your credit score, which will determine the type and amount of financing you qualify for.

A good credit score is generally considered to be 720 or higher. If your credit score is below that, you may still be able to qualify for a second mortgage, but you’ll likely pay a higher interest rate.

In general, lenders tend to have stricter credit requirements for second home mortgages than they do for primary residences, so it is important to maintain good credit habits to obtain favorable terms on your loan.

A higher credit score will get you a better interest rate on your mortgage. Make sure you check your credit report and score before applying for a mortgage so you can be aware of any blemishes on your credit history.

Additionally, if you plan on renting out your new property or using it as an investment property in any way, you will likely face more credit requirements and restrictions.

Down Payment

You’ll need to have a larger down payment for a second home than you would for a first home. Aim for 20% of the purchase price if you can swing it, which will help you avoid paying private mortgage insurance (PMI).

Debt-to-Income Ratio

Another important factor in qualifying for a second home mortgage is your debt-to-income ratio (DTI). This is the amount of debt that you have compared to your income. Lenders typically like to see a DTI of 43% or lower.

If you’re self-employed, you may have a tougher time qualifying for a second home mortgage. This is because lenders often require two years of tax returns to verify your income. If you’ve only been self-employed for one year, you may still be able to qualify if you have a strong credit score and low DTI.

If you have other debts (like credit card debt), make sure you’re prepared to pay those down before applying for a second home mortgage

Steps to Take When Buying a Second Home

• Figure out Your Financial Situation: Before you even start looking at second homes, you need to take a hard look at your finances. Can you afford a second mortgage or home equity loan? Do you have the cash on hand for a down payment and closing costs? Will you be able to comfortably make the monthly payments?
• Get Pre-Approved: Getting pre-approved for a second home mortgage is a crucial first step. This will give you an idea of how much house you can afford and what kind of interest rate you can expect to pay.
• Shop Around: Don’t just go with the first mortgage offer you receive – shop around to find the best deal possible. This might involve talking to multiple lenders and comparing offers from each one. In our experience, a mortgage broker, like First Coast Mortgage, is able to offer the most competitive options.
• Research Neighborhoods: Before buying a second home, it’s important to make sure you choose a neighborhood that meets your needs and fits your lifestyle. Do some research on different areas and consider things like commuting time, proximity to shops and restaurants, and local attractions.
• Close on Your New Home: Once you’ve found the perfect property, it’s time to begin the closing process. This may involve hiring an attorney or title company, reviewing documents, and signing papers. Stay organized throughout this phase so that nothing slips through the cracks.
• Make Any Necessary Improvements: Don’t move into your second home until all the issues have been resolved and everything is ready to go! This might include minor repairs or big renovations like remodeling a kitchen or bathroom. And don’t forget about furnishing your new home – that can be fun (yet expensive)!

If you’re thinking about buying a second home, it’s important to be financially prepared so that you can take advantage of this exciting opportunity. By doing your research, working with a reputable lender at First Coast Mortgage, and being mindful of your credit score and debt-to-income ratio, you’ll be well on your way to securing the second mortgage of your dreams!

Contact First Coast Mortgage to learn how to go about finding and buying a vacation home property in Florida, Tennessee or Georga—we make the purchasing process easy!