Buying a second home can be a lot like many other "second" life experiences: yes, you're more experienced but at the same time, you're not a super savvy, know-it-all either - even if you think you are!
Your financial circumstances will definitely be different this time around though and you'll be more prepared when it comes to common first-home buyer mistakes and how to avoid them.
Read on for our top points to consider when buying a second home.
Why would I need to be buying a second home?
You or your partner may have found a new job interstate or across town
Your personal circumstances have changed ie you've just got married or you're eager to start a family
You're retiring and keen for a tree or seachange, or simply want to downsize now that the kids have left home
You've spotted an ideal hotspot suburb and all your ducks are in a row to invest
The holiday area you love is producing too many 'For Sale' signs to resist
What do I need to qualify for a loan when buying a second home?
At the end of the day, your second home lender will essentially need the same details as your first home lender.
So, if you bought your first home fairly recently, you can be in a good place.
Why?
With a first home under your belt and (hopefully!) a strong loan repayment record, you'll be a winning grinner when it comes to loan applications.
You should also still be fairly BFF with spreadsheets and as for real estate research, you have it down pat, right?
However, your lender will still need the following details:
strong credit ratings and savings deposit (or the equity on your first property but more about equity later)
strong income and employment history
When buying a second home, lenders will also need to see:
recent rates notices
recent loan statements
proof you've made first home loan repayments on time, and not defaulted
What if I haven't bought a home for years?
Second home loaners such as retirees may not have bought a property for decades and in this time, the real estate market will have changed a lot.
So, here are some extra points to consider when applying for another loan:
ensure your knowledge of the current market, including property values, is accurate and well-researched
don't be afraid to ask for help from real estate agents or children and grandchildren, particularly those who have recently bought or sold
learn what's involved in applying for a loan and the upfront costs of buying a home
What is equity and how can it help with buying a second home?
Talking real estate jargon, equity is a term you'll hear a lot about especially when you're buying a second home.
Why?
Equity is the difference between the current value of your first purchase and what you still owe on your loan - and guess what?
This figure can be used as a deposit for buying your second home!
You can think of this equity as a reward for all the hard work you've put into paying off your loan hard and fast - to say nothing of the sacrifice involved in cold-shouldering all those coffees and great clothes.
Just remember that while being able to use your first home equity for buying a second home is a great position to be in, lenders will still need to see both this equity plus proof of a strong income before ticking a loan application.
Also, remember that accessing your equity can include its own particular risks such as a larger loan, which will mean more years of potentially larger repayments.
Costly considerations
If you're buying a second home for yourself, you will have to pay legal fees and stamp duty as well as establishment or application fees for a new loan.
If you're a second home buyer buying your first investment property, extra care is needed when considering a second loan.
Here are just a few points to consider:
don't assume your tenant's rent will cover council rates, insurance, property management fees and strata levies
ensure you always have extra income to cover vacant rental periods and unexpected maintenance costs
Reconsider your loans
Buying your second home can be the ideal time to compare home loans and consider what's best for you, including splitting your loan and refinancing.
Are interest-only loans preferable to principal and interest loans in your situation?
Or what about a debt consolidation loan or similar?
What are bridging loans?
We were tempted to write "otherwise known as 'Should I be buying a second home before selling my first one?'" after this question because if you're considering a bridging loan, this is exactly the question you'll be asking yourself.
Bridging loans basically help buyers and sellers in the tricky position of being between houses and loans.
Perhaps a sale has fallen through on your first home while in the midst of you making an offer on your second house - or vice versa.
Crazy things like this can happen but this is exactly where a bridging loan can help.
As well, there are times when buying a second home before selling your first one simply suits your particular situation better than doing it the other way around.
A bridging loan is a short-term loan that helps you essentially pay for two loans.
Just remember to consider the risks and benefits involved with these loans before signing off on one:
Bridging loans are usually interest-only loans (see above)
Your lender may require repayments ASAP on a bridging loan - or they may be prepared to wait until your first house has sold
Sale price and time overestimation can happen to the best of us so keep an eye open to this possibility
We're here to help
Making your lending life easier is what we're all about.
In fact, it's safe to say that Lending Loop loves anything remotely connected with buying and selling, to say nothing of all the ins and outs of mortgages.
We have loans big and small to choose from, including those for second-home buyers and property investors and we regularly deal with more than 40 of Australia’s biggest banks and specialist lenders
So, give us a call today at Lending Loop.
