Becoming a homeowner for the first time is a dream come true for many. You probably put a lot of work into making sure you would get approved for a mortgage at a good rate. Or maybe you have are even considering taking on a second property? This might make an excellent option if you take vacations to the same spot year after year. While some things about mortgages for second homes will be similar to what you've already gone through, there are also some differences to consider. Here's some information to keep in mind before you move forward with this process.
Your Credit Report and Score Will Likely Have to Be Even More Pristine
Getting approved for any mortgage at all isn't a walk in the park, but if you already have one mortgage, getting a second one or a vacation home might be even more work. Mortgage lenders do not like risk, and they will want to see that your finances are spotless to ensure you can pay off two different houses at the same time. Spend a little time going over your credit report and doing whatever you can to make sure your score is as high as possible before you apply.
You Will Likely Pay a Higher Interest Rate on This Mortgage Compared to the Mortgage You Already Have
Primary residences can sometimes benefit from lower interest rates with certain mortgage lenders. But if you take on a second property, you won't be eligible for this lower rate again because it's not your primary residence. Keep in mind that the higher rate will still cost you far less than what you might pay if you were to stick with short-term rentals or hotel rooms in your favorite vacation city over the next 20 years. But just be prepared to pay more interest this time around.
You May Be Required to Occupy the House a Certain Amount of Time Every Year By Your Mortgage Lender
If your home is a vacation home or a second home, the mortgage policy might include a fine print that says you have to occupy the house for a certain number of months or weeks in a year. Mortgage lenders don't want a house to just sit there and possibly fall into disarray because no one ever goes inside. One idea is to inquire with your lender about whether or not you renting out the house to others to make some extra money when you are not there will satisfy the occupancy requirement.