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How Does The Mortgage Process Work On A Second Home?

How Does The Mortgage Process Work On A Second Home?

Owning a vacation home in New Jersey by the ocean is a great idea. When you own a property here, it provides you with a great escape to spend some time and enjoy the weather and scenery. When you are looking to purchase a vacation home here, you will want to also consider your financing needs. In many cases, you will need to take out a mortgage. There is much you need to understand about taking out a mortgage on a second home.

Different Underwriting Standards

When you are reviewing Ocean City NJ sales listings, be sure that you will qualify for the financing you need to purchase a property. In many cases, the underwriting standards are similar to what they are for primary homes. This includes having a certain credit score and having an income that will support the housing payments. One of the challenges is that underwriters and lenders will also account for your primary residence, so you will need to be able to provide evidence that you can afford both homes.

Different Loan Options

When shopping for a primary residence, you will find there are many loan options available designed to help people purchase their homes. While there are fewer options and programs for secondary and vacation homes, there are still some options to consider that can help you get into a great property and loan. There are various FHA, VA, and other programs that should be considered, which could help you qualify for a loan with a lower down payment than another loan program. A mortgage loan officer can help you assess and navigate these options to find one right for your situation.

Longer Process

When you are applying for a mortgage for a vacation or second home, you will also want to recognize that the process can take longer. Approval standards and underwriting processes are different for secondary homes. Accordingly, you will want to ensure that you understand how long it will take to move through the underwriting, approval, and closing process to ensure you agree to a realistic escrow and closing date when signing a contract.

More Expensive Loan

You should also be prepared for a vacation property to have a more expensive loan interest rate and fee structure than standard mortgages. A vacation or secondary home tends to have higher interest rates than primary residences. This is because there are fewer government-sponsored loan programs and secondary homes tend to have higher default rates than primary residences, which adds more risk. A lender will typically price in higher interest rates and fees to compensate for the heightened risk.

Rental Income

If you are going to purchase a vacation home, you may also decide to rent it out. While the rental income could offset many of the costs of ownership, it can be difficult to underwrite for lenders. To include it, they will need to complete further diligence. If you are refinancing a mortgage and have bank statements, tax returns, and other information to validate the income, it may be easier to be included in the mortgage.

Browse Our Listings Today

If you are shopping for vacation or second homes for sale in Avalon, NJ, you will want to carefully consider every step of the process. Because of this, working with an industry professional that you trust is very important. Give us a call today to learn more about buying a vacation home in New Jersey, or start by browsing our listings!