When you are ready to buy your second home, it is important to understand how mortgage lenders perceive the risk. Generally, if you are ready to buy a second home you will have enough resources to come up with the substantially large down payment of up to 25% of the purchase price. But, the important thing to keep in mind is that mortgage lenders are aware of the increased financial burden and take this into account when it's time to make a decision. You will need to verify that you can handle the increased expense of two home mortgages without being dependant on a renter. You will most likely pay a higher interest rate on your second home mortgage too.

Understand What Lenders Classify as a Second Home

When you apply for a mortgage on a second or vacation home, your lender must validate that your new property meets the criteria for a second home. Your lender may compare the size and price of the secondary residence to the primary residence. The next thing that your lender may check is the distance of your secondary home from your primary residence. Lenders want to ensure that homebuyers are not using the property as an investment rather than a true second home. That kind of situation calls for an investment mortgage and has more stringent guidelines.

For many second home buyers, the desired property does not meet the requirements to be labeled as a second home by a lender. The situation is different for every buyer and lender and for each circumstance, so don’t give up on buying that second home quite yet. The down payment difference between a primary residence and a second home can be substantial. In most cases, buying that second home is still easier than purchasing an investment property. It will depend on what mortgage you choose, but the more you put down, the lower the interest will be and the monthly payment will be lower as well. Depending on the market trends, some home mortgage lenders may offer second home buyers the same rate and down payment as a primary home. Your credit report will of course be a big factor in your interest rate.

Talk to Your Lender about Your Options

It’s important to ask your lender about financing options for a second home purchase. Your lender will want to know what your plans are for the property. If you are going to keep the property for many years, a fixed mortgage would be a good option. However, if you do not plan to keep the property for a very long time, talk to you lender about an adjustable rate mortgage or a balloon mortgage option. These are good options for people who want to purchase a second home but don’t plan on keeping it for a long time. These options can offer lower interest rates as well.

Benefit from Second Home Purchase

A second home is a great investment because in some cases, all of the interest is tax deductible, just like your primary home’s mortgage. As long as there is space in your budget for a second home, you will be making a good financial decision to increase your wealth. An extra property can make vacations and getaways a delightful experience.