The idea of owning multiple homes is a dream that many share. This could be for a plethora of reasons ranging from investments to luxury. So, how soon can you buy another house after buying the first?
You can buy one house immediately after another if you’re using your own money. But if it’s a mortgage, you’ll have to be eligible. Qualifying for a second mortgage is tricky because most lenders require an LTV of 80%. You need to review your finances, save, and be ready to negotiate to qualify.
Like all mortgages, the lender will consider employment history, credit score, down payment, and debt-to-income ratio. Here, we discuss the time limit between buying houses and how to get a second mortgage.
Time Limit on Real Estate Acquisition
There’s no set time for when you can buy a house after completing another acquisition. It could happen on the same day if you want to. But that will depend on whether you have the money. For those buying the house with their capital, no one cares about how soon you’re buying properties as long as you can pay for them.
Time becomes relevant when you’re using a mortgage to get the property. Getting a second mortgage can be tricky, given that lenders would want to know the equity you have on your home and the debt you’re carrying. There are no rules on when you can buy the next property with the traditional loan as long as you qualify for the mortgage. Most lenders will usually require that you have a loan to value ratio of 80% or less to qualify for a second mortgage. Once you meet their requirements, you can buy another house as soon as possible after buying the first.
Also, if you plan to convert the first home for rentals or sell it, the lender might require that you sign an Occupancy Affidavit. This requires that you use the property as your primary residence for at least a year before you can move out and turn it into a rental property. It only applies when you use certain types of loans, such as the First-time homebuyer, to acquire your property.
What is Second Mortgage
A second mortgage is a home loan you take on an already mortgaged property. This mortgage comes in the best form as a home equity loan or home equity line of credit (HELOC). Second mortgages usually carry higher interest rates because they bear more risks for the lender. In case of default or foreclosure, the loans on the first mortgage are due before that of the second. The process for getting a first mortgage and a second mortgage is very similar.
You can apply for the second mortgage using the lender that holds your current mortgage or looking for another. Whichever you go for, the lender will first calculate your loan to value ratio, which is the division of your mortgage balance by the home value. Most lenders will not grant a second mortgage with above 80% LTV. 80% LTV means you still owe 80% of the house’s value and own the remaining 20%. The lower your LTV, the higher your chance of getting a second mortgage.
Qualifying Factors for Mortgage
Beyond the LTV ratio, the lender also looks at several factors determining whether you can get a second mortgage. They include:
1. Credit Score
Lenders will always look at your credit score, and the better it is, the higher your chance of getting the mortgage. That’s why you should do everything to raise your credit score. A credit score doesn’t just improve your chance of getting the mortgage. It’ll also influence the interest rate. A good credit score ensures that you have more favorable terms on a loan.
2. Employment History
A strong work history is important when applying for any loan, especially if it’s a second mortgage. Your employment history generally includes your paycheck for a certain period or a letter from your employer. This is why it’s not advisable to leave your current job while applying for a mortgage.
3. Debt To Income Ratio
This is the ratio of money you owe compared to how much you make. So, there’s an acceptable debt of income ratio level that you should have to get the mortgage.
4. Down Payment
The amount of down payment you can afford also affects your chance of getting a loan. It also means you get home equity in the property straight off and reduce your burden.
Steps To Take Before Buying a Second Home
Second mortgages come with strict requirements and rules. If you want to have a chance to get this mortgage, there are steps you can take. This includes:
1. Review Your Finances
Know your budget for the home and how much you can afford on the down payment by looking at your finances. Consider the cost of buying the house and the additional cost of owning the property. Expenses such as property taxes, insurance, association dues, and more. Lenders generally require that the monthly payment and all your existing credit obligations don’t go beyond 43% of your gross monthly income.
It helps to have savings when applying for a mortgage. Some lenders require that you should have a reserve of payments for some months after taking out the loan. These reserves can come in various forms, and the lender can ask for proof of funds. Savings can also cover the cost of a down payment and more.
You have to enter many negotiations when trying to get a house. You’ll negotiate with the lender to get the right terms and with the seller to get a good price. If you already have pre-approval, you’ll have to ensure that the new home price doesn’t exceed the pre-approved amount.
When you want to apply for a second mortgage, it’s important to consider the financial burdens and benefits. A second mortgage means extra costs you’ll have to pay monthly and how this affects your long-term expenses.