You’ve put in the hard work and set aside the money, and you’re finally ready to reap the rewards of your efforts by buying the second home of your dreams. If you have your heart set on making New Hampshire your new home away from home, that dream might look like a lake house on Winnipesaukee, a cabin in North Conway, a town home in downtown Manchester or a beach cottage in Rye. Whatever your dream, it’s probably safe to assume that you’ll need a little bit of financial assistance to make it a reality — and that’s where a second home mortgage comes into play.
Before you pull the trigger on buying a vacation home or investment property, let’s take a minute to discuss the requirements for a second home loan in the Granite State.
What is a Second Home Mortgage?
A second home mortgage is exactly what its name implies: a loan taken out for the express purpose of purchasing a second property. Not to be confused with a second mortgage — which enables borrowers to leverage their home equity and can be used to pay off debts or pay for other investments, such as home improvements or college tuition — a second mortgage is almost identical to a primary mortgage with a few key exceptions, which we’ll discuss in the next section.
Am I Eligible for a Second Home Mortgage?
In order to qualify for a second home loan, there are a few hurdles you’ll have to clear. Second home loan requirements in NH include:
- A substantial down payment. Your second mortgage will likely require a higher down payment than your first — anywhere from 10 percent to 35 percent, depending on the lender.
- A high credit score. Your down payment isn’t the only thing that needs to be higher if you want to apply for a second home mortgage — most lenders require a minimum score of 680 in order to receive approval.
- A low debt-to-income (DTI) ratio. Lenders typically look for second home loan applicants with a low DTI. Although the exact percentage varies from one lender to the next, most look for a DTI ratio no higher than 43 percent of your monthly pre-tax income.
- Steady employment. A lender won’t grant you a second mortgage unless they know for certain that you’ll be able to pay it back in full. A steady employment history clearly indicates that you have the means to afford payments not only on your primary mortgage, but on your second home mortgage, as well.
- A clear idea of what you intend to do with the money. A second mortgage is a major investment, so lenders reasonably want to know how the borrower intends to use their second home as a requisite for approval. For example, it’s generally easier to receive approval on a loan for a vacation home than an investment property because there’s more risk associated with renting out your home than treating it as a secondary residence. The intended use of your second home could also affect your down payment requirements and interest rates.
You’ll notice that these requirements aren’t all that different than those for a primary mortgage with the exception that the expectations for each category are slightly higher. That’s because second homes are considered a luxury and, as a result, are a greater risk to the lender; this is because luxury items are usually the first things a borrower will default on if they face financial hardship.
Let’s Get Started
So, you’ve done your research and determined that you’re in good standing to qualify for a second home loan — what’s next?
Before you start house hunting, consider utilizing the services of a mortgage broker. Although the process of applying for a second home mortgage might seem straightforward enough, there are a few things the average home buyer might not be aware of, such as how the lender you choose can affect your ability to qualify or how you can save money on fees. A qualified broker with experience in the New Hampshire market can guide you through the application process, introducing you to the right lenders, showing you ways to save money and acting as both your representative and a tireless advocate.
With over 150 years of collective experience in the credit-based mortgage industry, the brokers at Blue Water Mortgage Corporation have the expertise to help you secure a second home loan and get the best rate possible. Contact us today to speak with a broker and take the first step toward applying for a second home mortgage.