Best Mortgage Options for Second Home Buyers
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Nowadays, many home owners have either already purchased second properties or have expressed interest in doing so. While a few of them may have been fortunate enough to pay cash outright for their second homes, most have to consider the option of a second mortgage to cover the cost of an additional property – or to do improvements around the house. Below are some of the best and most popular mortgage options for second home buyers.
#1 – Traditional Second Mortgage
In many cases, home owners are looking for the quickest and simplest way to obtain a second mortgage. This usually sees them approaching the bank or lending institution that they obtained their original mortgage from and inquiring about getting a second mortgage from them. Provided that they have an excellent credit history and they can prove their ability to keep up with the additional repayments on a second loan as well as those from their original mortgage and all of their other expenses, they stand an excellent chance of qualifying for a second mortgage.
#2 – Home Equity Line of Credit (HELOC)
Not to be confused with a regular home equity loan, a HELOC is one of the best and most popular options for second home buyers. This form of private home loan enables you to use the existing equity in your existing home in very much the same way as you would use a credit card. You are able to borrow as little or as much as you need from the equity amount and then repay it over time – with interest. As with many other types of loan, the interest rate that is charged may depend largely on a home owner’s credit score.
#3 – Piggyback Second Mortgages
In most cases, these mortgages have to be obtained from private lenders, especially in cases where a home owner may already have a bad credit mortgage that he is repaying. These mortgages will also only apply to the amount of the down payment when a home owner is not able to cover the cost of putting down the 10% or 20% deposit and the associated closing costs that are normally required before he will qualify for a second mortgage.
#4 – Private Mortgage Loans
These are interest only loans and they are often favored by home owners who have a less than stellar credit rating. They also don’t require home owners to pay the mortgage principal down; however, interest payments will need to be paid each month. Private mortgage loans can be a good option for anyone who may be earning irregular income and/or may not be willing to wait as long as it takes for a regular mortgage to be approved. Sometimes classified as bad credit mortgages, private mortgage loans will have higher interest rates than regular mortgages and can sometimes be as high as 18%. As a result, this option should only be explored when there is absolutely no other way to obtain a second mortgage.