The journey to home ownership is a challenging one, fraught with potential missteps and misinformation, but once you’ve been through the wringer once, you may be inclined to buy into round two. There are a handful of reasons why homeowners might consider taking out a second mortgage, including upsizing, investing, and refinancing for a better loan rate. No matter what the end goal might be, every prospective buyer should go through a similar process before laying their money on the line.
Get your finances in order
The process of purchasing a second property is very similar to the experience of buying your first home in that you’ll need evidence of a steady income and a solid employment history. The approval requirements for a second home loan typically come down to your credit rating, deposit, and evidence of your ability to earn income and pay off loans. Depending on the amount of equity you have in your current property, you may typically access up to 80% of that property’s value. Of course, if you pay off your first mortgage as quickly as possible you’ll be rewarded with a stronger credit score as well as a reduced minimum down payment. You should also be mindful of any other outstanding debts, but if you manage to clear these hurdles, you’ll be well on your way to owning another home.
Work out what you can borrow
Doing the math is one of the most important steps you can take before committing to buy another property.
Not only will your borrowing capacity be crucial to determining whether you can make the leap, but it will also affect which areas you can afford to buy in. When it comes to determining the maximum loan amount you can afford, a repayment calculator is a handy tool, and will typically take your earnings, savings, debts, and current financial situation into account.
Scope out a location
Location is one of the most important considerations to make when it comes to buying property, even if you’re not planning on living in it yourself. If you can, opt for a place with some of the features buyers typically want nearby, like schools, shops, and public transport. It’s best to visit the area a few times before buying and look for things like renovations and places of worship as signs of a strong, invested community. Local weather trends also factor in, especially if the area might be prone to any natural hazards like earthquakes and hail. Once you find a house you love, these things may not deter you, but keep in mind that they may translate into extra expenses down the track.
Decide how the home will be used
Your second home doesn’t have to be an investment property, but it is a popular option, and for good reason. The most obvious benefit of this arrangement is having someone else contribute towards your mortgage payments, but you might prefer to avoid the higher down payment threshold and opt to use the house as a vacation property instead. Just keep in mind that if you do take this option, you’ll want to be able to spend a fair amount of time on vacation to get the full benefit of that purchase.
Find the right real estate agent
When you’re considering a move this big, you want the best possible advice on your side, and this is where a trusted real estate agent comes in handy. A good agent can impart valuable information about the location you’re considering, any pitfalls you might face, and how your credit score might impact your borrowing potential.
Get to know your insurance plan
Choosing the right insurance for your second property is crucial, especially if you plan to lease it to tenants. Some insurance providers offer policies designed for landlords, but even if you intend to keep the property as a holiday home, you’ll need to think about things like potential weather damage. A good insurance plan will cover you for natural disasters as well as a variety of other potential mishaps, so make sure you consider your options before signing on the dotted line.
Buying any home is no small feat, even for those who already know the ins and outs of the buying process, but the benefits could far outweigh the challenges you face along the way. Once you have considered every factor, narrowing down the search for the perfect place and getting your foot in the door will be that much easier.