What You Should Know About Buying a Second Home

Buying a second home is similar to buying your primary residence. Lenders require the same financial documentation as would be provided on a primary home loan. However, buyers should note a few differences.

Learn what Lenders Say Comprises a Second House

A lender considers two factors to confirm that a property is a second residence. The first is that most second homes are smaller in price and size than a borrower's primary home. The second factor is the distance between the two properties. The two homes will typically be expected to be about 100 miles apart or so. If these 2 conditions are present, the loan will be considered a mortgage on a second home.

The down payment for a property deemed a second home is less than that of a property that does not meet the above criteria. Getting financing for a second home is easier than an investment property. Your down payment is likely to be between five and ten percent. Of course, the larger the down payment, the lower your rate and the lower your monthly payment will be.

Ask Your Lender About the Differences Between Financing Options

The same loan products are available for a second home mortgage as during the financing of a primary home. You may, however, want to consider other options for financing. Discuss your long- and short-term plans with your lender. If you plan on keeping your second home for a number of years, a fixed rate loan with a larger down payment would probably suit you best. On the other hand, if you consider this home a short-term investment, an adjustable rate mortgage or even a balloon might be a better option.

Do Your Research Before Purchasing a Vacation Home

The rate could be exactly the same as on a primary home. Many conventional lenders will offer the loans with the same rates and down payment requirements for second homes as primary. If the lender has some concerns about the borrower, they may charge slightly high interest rate. In most cases, it will only be an eighth-of-a-percent increase.

As you research your ability to buy a vacation home, use a mortgage calculator with a five percent down payment, you will be in the ball park of what the cost will be. Use the going interest rate, adding a quarter percent, to figure what your second home is likely to cost. Don't forget to account for the tax deduction the interest will give you.

If this looks affordable, take the plunge; it will be fun!

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