Second Home Mortgages in North Carolina: What You Need to Know Roger Odoardi Reviewed by: Roger Odoardi Not only is North Carolina one of the most beautiful places to visit, but it is also one of the most affordable places to have a second home. From the growing industrial hubs in the city of Charlotte to the peaceful shorelines on the coast of Beaufort, the Tar Heel State is a popular place for tourists to visit and vacationers to dwell. If you’ve ever visited North Carolina, you may be thinking that it could be the perfect place for your home away from home — or perhaps you see a booming real estate opportunity for an investment property. No matter your unique intentions, there’s no time like the present to pursue your homebuying dream. We’re covering everything you need to know about qualifying for a second home mortgage in North Carolina. But first, let’s talk about some of the benefits of buying a second home. Reasons to Buy a Second Home There are many benefits to owning a second home in North Carolina, but let’s get into some of the more practical reasons: It’s a valuable asset: Whether it’s a vacation home or an investment property, a second home can get you a return on your investment. As time passes, it’s typical for a property to naturally accrue more value. If you make improvements to the property over time, the property’s value will increase even more and provide you with a decent profit should you choose to sell it down the line. Your home could pay for itself: Owning a second home grants you the opportunity to rent the property out during the off-season. As long as you occupy the second home for the majority of the year, you may rent it out for a few weeks – and there are countless renters that are willing to pay top dollar for a relaxing North Carolina vacation. If you do choose to rent out your second home, it is notable to mention that with a rental term over 14 days, you will be obligated to report rental income to the IRS. Rental income can be used for maintenance, home improvements or even mortgage payments. Your second home could be tax deductible: For homeowners with more than one property, there are a number of different tax breaks available. If you decide not to rent out your second home, interest on the mortgage is deductible within the same limits as the interest on your first home. According to Intuit, by foregoing renters you can write off 100% of interest paid on up to $1.1 million of debt secured on your first and second homes combined. We highly recommend that you speak to one of our experts prior to purchasing a second home. Things to Consider Before You Buy a Second Home Here are some of the crucial considerations to make before buying a second home: You’ll need a larger down payment: The majority of lenders will require you to pay more down on a second home than they would on a primary residence. While some lenders may require only 10% down, it is more common for lenders to require a down payment in the 20-25% range for a second home. Second home mortgages can be expensive: In order to afford a vacation home in North Carolina, you will likely need to apply for a second home loan. You can usually borrow a larger amount with a second home loan, but remember that you also have to pay the fees associated with a standard mortgage, including an appraisal fee, an origination fee and closing costs. Second home mortgages can come with higher interest rates: Interest rates depend entirely on how you intend to use your second home. For vacation homes, rates are generally the same as those for primary mortgages. On the other hand, investment properties are considered to be a riskier investment and lenders will charge higher interest rates accordingly. How to Qualify for a Second Home Mortgage The majority of people who wish to purchase a second property will need to take out a second home loan. A second mortgage is similar to a primary mortgage in many ways — yet the most challenging aspect of buying a second home is in fact qualifying for the loan. Here’s a closer look at the requirements to qualify for a second home mortgage in North Carolina: Substantial down payment: Depending on the lender, you could pay anywhere from 10 to 35% down for your second mortgage. High credit score: To qualify for a second home mortgage, your credit score will be held to a higher standard. Some lenders require a minimum score of 680 to receive approval, but many lenders require a score between 725 and 750 to qualify for a second home loan. Low debt-to-income (DTI) ratio: Fannie Mae allows for a DTI ratio of up to 45%, but many lenders look for a DTI ratio below 43% of your monthly pre-tax income. The lower your DTI ratio, the better. Reserves: Should you experience any unexpected interruption in your income, you want to ensure that you have enough funds available to continue making mortgage payments. Steady employment history and an indication of available reserves will give lenders the certainty needed for approval. As you can see, the expectations to qualify for a second home mortgage are slightly higher than what is needed for a primary loan. If you are unsure if you qualify for a second mortgage, contact one of our experts today. The Difference Between Vacation Homes & Investment Properties When it comes to getting a second home mortgage, it is important to be clear on the distinctions between a vacation home and an investment property. A vacation home is defined as a property used for recreational purposes for part of the year, whereas an investment property is defined as any real estate that is used to make a profit rather than as a primary residence. Investment properties include residential rental properties, commercial properties and homes purchased with the intention of flipping to resell. If your home is rented for 15+ days out of the calendar year, it will be considered a rental/investment property rather than a vacation home by the Internal Revenue Service (IRS). The loan application process is typically easier for borrowers who intend to buy a vacation home rather than investment property because it comes with less strict down payment requirements and lower interest rates. If you plan to rent out your second home, your lender will likely require an additional appraisal and a rent schedule. Talk to an Expert It’s time to take the next step and talk to a mortgage expert. Regardless of what you are looking for in a second home, our team has the financial expertise to help you navigate the second home loan application process and secure the lowest rates possible. With the help of the Blue Water team, buying a second home in North Carolina is in closer reach than you think — contact us today to start a conversation and get started on your journey to a second home! Blue Water is now licensed in New Hampshire, Maine, Massachusetts, Connecticut, Florida, and North Carolina. Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.