Getting a Loan for a Second Home
If you’re looking for a mortgage for a second home it can be overwhelming just how many different choices there are. Whether you intend to use a bank, building society or home loan company, you’ll be faced with a number of choices that you must make to determine which is best suited to your situation. Let’s take a look at some of them here.
Seek Specialist AdviceIf you’re able to afford it, it’s a very worthwhile idea to seek advice from an independent mortgage advisor before you go ahead with any application. Speaking to someone in your bank or someone in a loan company is unlikely to provide you with the information you genuinely seek. They will have a vested interest in getting you to sign up with their company as obviously this makes them commission and makes the company money. If you seek out an independent mortgage advisor you’re more likely to get a less bias piece of advice about a larger number of possible lenders. Even a mortgage advisor though will usually be on a commission of some description, so combining your own research with theirs will ultimately result in finding the best mortgage for your situation.
Providing Information to Obtain a LoanAs with any loan, you’ll be required to provide an in-depth account of your financial and personal situation when you apply. You annual income and your annual expenses will be taken into consideration, along with any assets you may own. Quite often, you’ll be required to go through considerable security checks also, so be prepared to have to provide bank statements, employer letters, pay slips and more when you apply. If you’re applying with a partner they are required to do the same and your combined income will be the figure that the loan amount will be based on. Mortgage lenders are generally far more difficult on second home borrowers because generally it means that your income is stretched even further if you have a second home to maintain. This means that usually the second home rate is slightly higher than a primary home loan rate and this can mean tough choices for the lender when it comes to approving an applicant.
Different Types of Loan
There are a variety of different types of loan available when you’re considering buying a second home. Here are some of the most common ones:
- Buy to Let Mortgage
- Secured Loan
- Interest Only Loan
What you have to be very careful with is that you’re getting the loan that will suit you best. Ideally, most people would opt for an unsecured loan as this means that essentially there are no strings attached. With this kind of loan, you basically sign up, make the payments for the duration of the agreement and after this the loan is paid off. This kind of loan usually has a rate that is fixed at the beginning so you’ll know exactly how much you have to pay each month to cover it. Unsecured loans aren’t usually available for those seeking a home loan however as there is just too much risk with them. Generally, you will be offered a secured loan and you are usually only offered this if you are already a homeowner. This type of loan is very similar to a home-equity loan as it means that if you’re unable to make a payment, you’re at risk of losing both homes. Generally a home-equity loan is variable rate and therefore fluctuates over time. You should consider this when you sign the contract in case the rates push your repayments to a limit where you’re no longer able to make them.
Another kind of loan is a buy to let loan. This type of mortgage is set up for people who want to invest in property and who are likely to recoup much of the monthly repayments through the rental income they make. These are becoming increasingly popular along with interest only loans that are perfect for investors. Interest only means that your monthly repayments are usually lower and you’re simply paying off the interest on the property, rather than diminishing any of the amount owed to the bank. This is usually good if you plan to keep the property for a lengthy time where it is likely to have significant capital growth.