Buying a second home can be an exciting venture and an excellent way to increase your property portfolio and build wealth over time. Whether it is for investment purposes, a holiday home, or a new residence, it is paramount to understand the property market and the financial aspects involved.
In this guide, we will take you through the process of buying a second home and look at the financial options available. We will also discuss how your first home can be used as leverage for buying your second home.
The process of buying a second home
The process of buying your second home is quite similar to that of buying your first home, but there are more intricate steps involved. Your financial status, credit rating, and current loan repayments on your existing home will need to be assessed to determine whether you are eligible for financing for your second home.
The deposit needed for a second home
Just like your first home, you will need a deposit of at least 20% to avoid paying the Lenders Mortgage Insurance (LMI), which can be costly. You also have the option of leveraging your first home’s equity as a deposit for your second home. You can calculate your home equity by getting the difference between the current market value of your property and your outstanding mortgage.
Ways to finance your second home
Buying a second home doesn’t need to be daunting since you are already familiar with the process. Some of the ways you can finance your purchase include:
- Using your first home’s equity: If you have enough equity, you may be able to pay your deposit and other upfront costs, including legal fees, refinancing costs, and stamp duty. However, this will depend on the property’s value and purpose.
- Refinance your home loan: You can also refinance your current home loan to release equity that you can use as a deposit for your second home. However, if you are currently owing over 80% of your property value, you will not get equity on the home.
- Apply for a new mortgage: You may decide to just apply for a new home loan to buy your second home. However, your credit rating and financial status should be in check. Ensure you consult a Home Lending Specialist to find a mortgage that suits you.
Why do you need a second home?
There are several reasons for getting a second home. These include:
- Holiday home: You can purchase a second home to be used by your family on holidays. Depending on your needs and preferences, you may decide to rent your holiday home for short-term periods when you are not using it. This can be an excellent way to earn income on the side that can come in handy in the maintenance of the home.
- Secondary residence: If your work requires you to travel regularly, you may need to buy a second home in the state you are working in.
- Investment purposes: If you have been thinking about getting into the property or real estate market, a second home could provide the right avenue for you. When purchasing an investment property, ensure it is in a prime location and affordable to you.
Purchasing a second home in Australia requires careful planning and an in-depth understanding of the local property market. In addition, ensure you know the kind of property you need and look for a Home Loan Specialist who can help you understand the financial options you have at your disposal.