Thinking about buying a second home? Even in today’s housing market, a second home can be a great long term investment, or a way to earn extra income on the side by renting! However, there are some things to consider when buying a second home.
When shopping around for that second home, it is important to think about location, the current housing market, your personal finances and how you plan on financing your second home. Before you apply for a loan to purchase a second home, take a look at these things to consider.
- Know How Much You Can Afford
Buying a second home isn’t that much different than buying your first home. Mortgage lenders calculate affordability based on your personal information, including income, expenses and size of down payment. A standard rule for lenders is that your monthly housing payment (principal, interest, taxes and insurance) should not take up more than 28 percent of your income before taxes.
- Start Saving Now
If you are planning to purchase a second home, it’s a good idea to start saving money now! Many lenders require home buyers to have at least two months of mortgage payments in the bank, but how much is required may depend on your credit score.
- Know Your Score
Just like when you bought your primary home, your credit score affects what rate you can get for your second-home mortgage. The higher your credit score, the more attractive the rate and the more you save over the life of your loan. The lower your credit score, the more cash the bank will expect you to have in reserve.
At Palisades Credit Union, we strive to help our members finance the home of their dreams. We understand that finding the right home and mortgage sets a solid foundation for successful homeownership. Whether it’s your first home or your second we are here to help! Contact us today to learn more or apply online.
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