Getting a Mortgage Loan to Finance a Second Home in Boston Area

If you live in the Greater Boston Area and have decided that you want to purchase a second home/vacation home in the nearby area or elsewhere, you need to give the decision a lot of thought before proceeding. Mortgage loan requirements for a second house come with more stringent requirements. If you need a loan to finance the purchase, improve the likelihood of your application being accepted.

boston appraisalQuestions To Ask Before Applying For A Mortgage Loan In The Greater Boston Area

 

  • Can You Truly Afford The Purchase: While a second vacation home will allow you to get out of the city more, enjoy life and relax more, if you cannot pay for the house, it will cause needless complications in the future. So the first step you need to take is to sit and write down all of your liabilities and the amount you already owe.  Then, take that list and compare them with the amount of money you have in savings and expect to make in the next couple of years. If you find that you have enough left over after all expenses are paid to still pay for the second mortgage, the insurance for the house and the property taxes, then you can proceed.
  • To Rent or Not: The next question you need to ask is if you plan on renting out the house during the time you are not there. While renting is a good source of money, if you start renting then you can no longer deduct the interest which you pay on the second mortgage from your taxes. Additionally, the IRS will consider the amount you make by renting out the house as taxable income.

Once you have found a good second home/vacation home, and answered the above questions, you need to look for a mortgage loan to finance the purchase.

Requirements for a Second Mortgage Loan Unlike your first mortgage, which is generally easy to qualify for, the second mortgage requires a much better financial profile in order to gain acceptance from a lender.

 

  • High Credit Score: While the exact requirement varies from lender to lender, it is widely expected that applicants for second mortgages have scores higher than 725. The lower your credit score; lower the chances of acceptance and the higher the interest rate which you will need to pay.
  • High Down Payment: While you can get a first mortgage without any down payment, for second homes/vacation homes you need to put down a minimum of 20%-30% while applying for the loan (At times even a 35% down payment is expected by lenders).
  • Debt to Income Ratio: This ratio shows the total amount of your current monthly income that you currently spend on debt alone in a percentage form. A good debt to income ratio is lesser than 36%.

Other than the above stringent requirements, second mortgage loans also require a home appraisal, a good home price to income ratio of lesser than 28%, and all of the other requirements which you met to obtain the first mortgage loan.

The procedure to get a second mortgage loan is not inherently easy. This is to ensure that only those people who can truly afford to buy a second house get approved for loans. So after you have done the math (asking your loan advisor for help, if you need it), and improve your financial profile to ensure smooth sailing while applying for a second mortgage loan in the Greater Boston Area.

Phil Ganz (354 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317


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