Having two homes is a dream for many until you think about having two mortgages. Getting one mortgage is hard enough, but you are probably wondering is it even possible to qualify for a second mortgage without being extremely rich. The good news is… You can.
If you have some money to spare or are planning to buy a new house so you can sell your old one, you are probably considering buying a second house. Having a second property can be a good option both for a vacation home and for an investment if you plan to sell it out, and if you plan on moving from your old, unwanted house, then the second home is nice insurance you won’t end up on the streets. However, it can be a problem when you have to qualify for a second mortgage.
What is a second mortgage?
The second mortgage is not the same as the first one in the sense that it is junior in position to the first mortgage. Most people will prefer to not refinance the first mortgage and to replace it with a new, higher one, but will instead take out a smaller second mortgage. Keep in mind that the new mortgage can be higher than the old one, as the size of the mortgage depends on the payment amount and interest rate.
When you get a second mortgage, the interest rate and the repayment schedule may be better for you on a second mortgage than if you refinance your first mortgage into a larger loan. A smaller mortgage also means smaller closing price, so if you plan on having more than one property, the second mortgage is the more recommended option – especially if you are selling your house to buy a new, smaller one.
How to qualify for a second mortgage?
Have a good relationship with your lender
For the lender, a second mortgage is riskier than the first one, as if anything happens to both of your possessions the one with the first mortgage is the one that has a priority when it comes to repaying the debt. This is why mortgage rates are always higher for second mortgages. Also, this is why having a good relationship with your mortgage lender is a nice start, as this way they will be more likely to consider giving you another loan.
Have a lot of equity
When you are selling your first house to buy a new one, equity is the money you would receive after you pay off your mortgage. The more equity you have, the higher your chances are of being able to qualify for a second mortgage. It is also recommended that you make a big down payment, as that will further decrease the lender’s risk.
Make regular payments
If you own your first house for several years and you’ve never missed a mortgage payment, this is a big recommendation for your lender, who now knows he’s working with a responsible homeowner. If you were on time with paying your bills, such as utilities, insurance, telecommunications and others, this is an even bigger thumbs up. When you make your plan on applying for a second mortgage, be sure you have the confirmation from service providers which shows your responsible attitude.
Have a dependable source of income
Homeowners who want to qualify for a second mortgage who have had the same job for 10 years will have an advantage compared to homeowners who can’t keep up a job for more than several months. If you have a dependable source of income, it proves the lender that you can make payments on time and that you are less likely to get yourself in debt.
This is simple. The higher your credit score, the lower your interest rates, which means bigger chances of being able to have a loan approved. In order to have a high credit score, you must make all of your payments on time and have a diverse portfolio of credit accounts. However, if you have had a foreclosure in the previous 7 years, this will have a great negative impact and might ruin your chances of qualifying for a second mortgage.
Be the owner of the property
This one is good news for all the homeowners who are looking to buy a second house. As all of the previously stated factors are considered ‘risky’, as the changes in them can occur in a matter of months, the best insurance for a lender to secure their investment is if you already are the owner of the property that you can exchange for at least a portion of the debt if you end up owing them.
If you want a second mortgage so you can buy a new house and then sell your new one, you should consider working with a real estate investor, such as Sparks Property Investors LLC. We will buy your house as-is, even before it’s listed on the market, and we will pay you in cash, which means that you will be able to quickly repay your mortgage and all you owe for your first house, which means that you don’t even have to worry about being able to qualify for a second mortgage. Not only that but when you sell your house to an investor, you can usually make a deal about renting a property until you’ve found a new one. If you want to sell your house to buy a new one, this is the best option to prevent any chances of not being approved by your lender.