Posted by Competitive Edge Real Estate Services on 5/26/2020

Photo by Vlada Karpovich from Pexels

Buying a second home is an exceptional opportunity. You can expand your real estate portfolio, creating an investment strategy for building wealth over the long term. It’s also nice to have a home, one you can use on the weekends to get away. Whether you want to buy a home on the beach, on a lake in a densely wooded area or a home across the country, your first step is securing financing.

Know the Costs of Buying a Second Home

Purchasing a second home does mean more responsibility. It may mean a second mortgage, insurance costs and property maintenance. You’ll be paying utilities, upkeep and taxes on a multiple properties. Using this information, calculate how much you want to spend each month in these areas. Then, you can start looking for the home that fits.

Work to Build Your Down Payment

Buying a second home affordably is easier to do when you can apply a sizable down payment. Most often, home buyers need between 3 and 20 percent of the purchase price available as a down payment. The more you have, the less you finance or the larger of a home you can safely purchase.

With second homes, you may have additional avenues for securing that down payment. This includes savings, of course, but it may also include borrowing against the equity in an existing home to use as a down payment.

Choosing a Loan Program for Your Needs

One of the challenges of buying a second home is proving to lenders you can afford the mortgage payment and other costs. There are loan programs available to help you, but the options are somewhat limited in terms of federally sponsored programs. You may have used a VA or FHA loan, for example, to purchase your first home. These are generally just for the primary residence, not second homes.

However, there are other loans available to you. Conventional loans, which are still some of the most commonly sought-after loans available, are available to most people. Lenders will look at things such as:

  • Credit scores
  • Repayment history on existing loans
  • Debt-to-income ratios
  • Income reliability
  • Property value
  • Like any other home loan, it will be backed by the value of the home you purchase. In that way, the home must be worth at least as much as you plan to borrow.

    Debt-to-income ratios tend to be a big factor for most lenders. Fannie Mae-based loans often require a ratio that is up to 45 percent if you have at least 25 percent down and a moderate credit score. That means your monthly payments need to be under 45 percent of your gross income.

    It’s also important to consider how you plan to use the property. Lenders need to know if the home will be vacant (getting insurance for it can be difficult). They also want to know if you plan to produce a second income from it. If so, you need to ensure your loan covers this type of use.

    The good news is that most conventional lenders off second home loans. Find the dream home you’ve been looking for, and then work with a lender to secure the purchase.




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    Posted by Competitive Edge Real Estate Services on 3/31/2020

    Image by Shutterbug75 from Pixabay

    With a mortgage, a buyer is applying for financing to purchase the property in its entirety. They're relying on their credit and assets for approval before assuming responsibility of the full property. In a land contract, you're cutting out the need for a formal lender and relying on the seller to approve or deny your application.

    The seeming simplicity of the transaction may make some people discount the importance of negotiation. However, there are a few things to keep in mind so both the buyer and seller are comfortable with the terms of the agreement. 

    Talk to the Seller 

    With a land contract, you may be more beholden to the seller than you would be to a lender in a traditional mortgage. If the seller thinks of you as a tenant rather than an owner of the place, you'll need to discuss their exact involvement over the course of the contract.

    Because the seller won't receive the full value of the property upon sale, their financial insecurity is entirely understandable. They may want to check up with you over the phone, in-person, or through a third-party. If you're uncomfortable with the level of oversight, you may need to speak up or find a different property. 

    Make sure you understand your obligations during this time. Some buyers are treated as a renter of the property — until it comes time to make significant and costly repairs. If you're responsible for all upkeep, you may be able to negotiate more freedom in exchange for the additional expense. 

    Think Through the Finances 

    One of the starkest differences between a traditionally financed home and a land contract is the speed of repayments. Even if you do find a seller willing to extend the contract, it can still be a major strain on your finances. As you factor in your current assets and credit score, you should also consider the future.

    If the final payment is large enough, it may still require a substantial loan. If your credit hasn't improved enough by the time the contract nears the end, it could be a significant blow to your savings. And if you can't meet the terms of the contract, the seller will get to keep the money you've already paid them (as well as the property). 

    Negotiating a land contract means thinking through the repercussions of each clause. While the terms may seem looser than a standard mortgage, there may be strings attached that aren't as obvious at first glance. Ensure that you understand your financial and practical responsibilities before signing on the dotted line. 




    Tags: loans   Financing   home loan   finance  
    Categories: Uncategorized  




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