FINANCING A SECOND HOME

By Tricia Morris
President, Premiere Mortgage

Increasing, many Americans today are thinking about purchasing a second home. But, while this trend may be growing as baby boomers age, financing for a second home may seem at times to be frustrating and difficult to understand.

Let’s take a look at a loan on a second home from the lenders perspective. It may be reasonable to assume that if you were to experience a financial difficulty the primary home might be the asset that is protected, while the “second” home might be less of a priority as you sought to preserve the equity on your primary residence. That is the major reason why most qualifying and underwriting guidelines are more stringent for second-home loans. In addition, the secondary market—which is where the lender sells
the second-home loan—will set a different standard to qualify a second-home buyer.

For example, most second-home loans require a larger down payment. This is the same for an existing home or for a home you are going to build. Often a 10 percent and possibly a 20 percent down payment will apply to both fixed rate and adjustable rate mortgages.

Qualifying for a second-home mortgage may be more difficult as the lender will review the usual items such as installment debt (credit cards, etc.) and long tern revolving debt, but also the payment being made on your first mortgage. This can have the potential of either reducing the amount of the loan to be authorized or disqualifying a borrower altogether.

There is one leverage option that might be open to you and give you’re the additional assistance needed to get your loan. You may be able to combine a 10 percent down payment with an equity line. This depends on the type of property you are buying and condos or land may not qualify.

This is only one option allowed by the secondary market that purchases second-home loans. There are others that may also allow you to avoid private mortage insurance, depending on the status of your first mortage.

It is important to note that the financing of your second home need not be intimidating. If you seek out the help of a qualified local lender as your resource, you can obtain the best program for you that is a combination of traditional and second mortage financing. Then, your dream of a second home can be well on the way to reality.

Premiere Mortgage has offices in Kihei and Kahana. Tricia Morris may be reached at 874-8800.

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