Mortgage Second Home - How to Mortgage a Second Home
rate lender lenders primary
While lending standards, policies and procedures for financing a primary residence have become much more stringent than in previous times, obtaining a mortgage for a second home has become even more challenging.
Lenders who will even consider providing the funds to mortgage a second home are going to be tougher while reviewing the borrowers application and in fact, some lenders may choose not to lend money for a property that is not going to be a primary residence. They may think it a riskier investment than a home that is going to be considered more important to a borrower than a second home.
If you’ve made the decision to purchase or refinance real estate that will not be your primary residence, you will want to make sure that the lender you choose is aware that this will be a mortgage for a second home. It makes a difference from the very beginning of your mortgage application as most lenders will quote a different rate and different fees to mortgage a second home than a primary residence.
In addition, many lenders, to compensate for the increased risk in providing a mortgage for a second home may reduce the maximum amount you can borrower against the value of the property.
While exact figures will vary, you will find yourself paying more and able to borrow less to mortgage a second home.
It’s important to check with several lending institutions prior to making a commitment to mortgage a second home. Not all lenders are equal, and not all loan programs offer the same benefits. Always get at least three different quotes and get them all on the same day as rates can fluctuate on a daily basis. The only way to truly compare lenders is to compare the three quotes all on the same day. It is also important to understand that what you are quoted today may be a whole different number tomorrow. The rates really do change that fast depending upon market conditions.
While getting your quotes, don’t just ask about the rate of the mortgage and the length of the mortgage. Ask about all the fees that are included while getting a mortgage for a second home. Every lender has different fees but they are all required by law to disclose them in writing to you on a Good Faith Estimate.
The Good Faith Estimate gained strength in 2010 as federal law now requires that some of the fees paid at the time of closing can not be more than 10% higher than what was quoted on the Good Faith Estimate.
After you have narrowed down your search for a lender to mortgage a second home, get it all in writing. Remember, because the market is constantly changing, you can’t be guaranteed your rate unless you lock in the numbers and it must be done in writing. Do not accept a verbal statement from a lender that your rate is final.
Even if you do lock in your rate in writing, there will most likely be a time limit on your rate lock. Many locks are only good for sixty days, therefore time is of the essence! That means you must get all required documentation to your lender as quickly as possible. If you don’t provide the paperwork or information in a timely manner, the lender can not process your loan quickly enough and your rate lock could expire without you being able to close on the loan.
You may lose your rate that you took such care to track down. Stay ahead of the game and make sure you get confirmation from your lender that they have received everything they need from you.
One additional option to consider if you want to mortgage a second home is obtaining a Home Equity Loan using your primary residence as collateral instead of the second property. While this may be an excellent option for some borrowers, it may also complicate things at tax time as it may affect the amount you can deduct for interest paid for a mortgage. This option should be reviewed by your tax specialist prior to making any decisions.