Getting a second mortgage can allow you to buy another house you will be able to use as a holiday home, or to rent out. No matter what you decide to do with that second home, it will surely turn out to be a good investment.
But is getting that second mortgage complicated, and is it possible in your situation? Will you be able to afford it, and to get approved for it?
Let’s learn more about how to get a second mortgage to buy another house:
1. Start by making sure you know what a second mortgage is
Let’s start by defining what a second mortgage is. Homeowners can get a secured loan, and use a house they already own as collateral. This is called getting a second charge mortgage, but some people simply call it a second mortgage,
As for a remortgage, a 2nd mortgage can be used to pay off your first mortgage. There are also people who call this process getting a second mortgage, but this isn’t exactly the case.
What a second mortgage really is, is a mortgage that is separate from your first one. You can use it to buy a second home, and if ever you fail to repay it, your first mortgage and your first home will not be affected.
2. Get ready to go through a strict eligibility check
If you already have a mortgage, you have a good idea of how you can apply for one, since the process is pretty much the same for a second mortgage. However, the requirements for your second mortgage will be more strict.
Since you already have a mortgage to repay, lenders will need to be convinced that you will be able to repay a second mortgage. If they consider there is a risk you might not be able to afford it, they will not approve your application.
To put all the chances on your side, you have to get ready to go through a strict eligibility check. Lenders will take a look at your credit score and credit history, and you also need to have a reliable source of income, and enough cash reserves.
3. Make sure you can afford a large down payment
If you have a lot of money in your bank account, lenders will know that you will be able to repay your mortgage, at least for several months.
It will also be a lot easier for you to get approved for your second mortgage if you can afford to make a large down payment. For example, if you can make a deposit of at least 30% of the purchase price of a home, you will be more likely to get approved than if you could only afford to put down 15%.
4. Gather the paperwork that will be necessary
To prepare your second mortgage application, you will need to gather some paperwork. You will need to submit proof of income, pay stubs, tax returns, bank statements, and other asset statements.
These documents, along with your credit score and history, will help you convince lenders that you will be able to pay two mortgages at the same time. With this knowledge, they will be more likely to approve your application.
5. Take your time to shop for a mortgage lender
Mortgage lenders are selective, and you should be as well. Before you simply go ahead and apply for your second mortgage with the same lender as your first, take your time to shop around.
Get quotes from different mortgage lenders, and choose the one that can offer you the best deal. Get in touch with them, and see if you can get preapproved for your second mortgage.
6. Find the house you want to buy
Once you have gotten preapproved, it will be time to find the right property to purchase. If your second house will be a holiday home, perhaps you already have a clear idea of where you want it to be located.
If you want to buy a property that you will be able to rent, you will need to research the market to be sure this property will be profitable. If you buy a house you want to rent, but you are unable to rent it to anyone, it could negatively impact your second mortgage payments.
7. Get approved for your second mortgage and make an offer
When you have found the perfect house, you will need to get approved for your second mortgage before making an offer.
If you get approved, you should be able to close the deal in a timely manner. Next, all you will have to do is enjoy your second home, or look for renters. You will also, of course, have to make sure you will not default on any of your two mortgages.