When applying for a mortgage, you have to answer questions regarding the use of the property. It could be your primary residence, second home, or investment property. How you intend to use the property determines the mortgage rates you get. You should also meet the given requirements before approval. Unlike primary residences, second homes get higher interest rates because the buyer spends less time in them. Consider these factors when buying a second home.
Qualifying for a Second Home Mortgage
Your second home should be used as a vacation home to qualify for a second home mortgage. It should not be a rental or investment property to fulfill Second home mortgage rates in Massachusetts. Your credit, income, employment history, and other factors will be considered as your primary residence mortgage.
You should review your credit report to improve your score when starting the process. In addition, organize any necessary paperwork like bank statements, tax returns, and pay stubs.
Down Payment
When buying a primary residence in Massachusetts, you can make a down payment of 3% in most cases. To buy a vacation home, you need at least 10% if you have a high credit score and low debts. If your DTI is higher or you have a lower credit score, your lender may require around a 20% down payment. You could also qualify for a conventional loan by making a down payment of 25% or higher.
Interest Rates
Second-home mortgage rates are slightly higher than first-home mortgages. Before selecting any mortgage lender, compare different offers, fees, and annual percentage rates. Higher interest rates result from higher default chances than a primary residence.
Financing your Vacation Home
You can pay for your vacation home in two ways;
- Cash-Out Finance
You can cover part of the entire purchase with the equity in your primary Massachusetts home. This is possible through a home equity loan, cash-out finance, or home equity line of credit (HELOC) on your primary home.
- Conventional Loan
You can take out a conventional loan on the second home. This process is like taking a loan on your primary home with tougher requirements.
While second home mortgage rates are still low, you can also find a cheaper vacation home loan. Shop around for the best rates like you would when buying the house. Ensure you inform your loan officer how you would like to finance your vacation home.
