Lake season is here! If you are considering purchasing a vacation property, now is a great time. No matter what type of vacation property – lakeshore, rural or urban — you’ll follow the same basic steps when it comes to financing a second home. Here are some things to consider as you purchase a second property.

Setting a budget:

When financing a second home purchase, it’s essential to get in touch with a mortgage consultant BEFORE you begin your property search.

Together with your mortgage consultant, we will help you determine a budget that takes into account, maximum mortgage payment, annual homeowner’s insurance policy, and taxes.

While these additional expenses are not factored into your mortgage scenario, other costs to keep in mind are travel costs – to and from the property, regular maintenance & repairs, utilities, furnishings, and household items.

Financing a second home:

While some people can afford to pay cash for a vacation home, financing makes more sense for a majority of future second homeowners. Here are two options to consider:

Conventional Loan:

Financing a second home is different than purchasing a primary residence. FHA home loans are not an option since they can only be used to buy a primary residence. That leaves a conventional loan, which you have to qualify for on top of any mortgage debt on your primary home.

Typically, you will need to make a down payment of at least 10 percent, meet credit standards and debt-to-income requirements, and provide documents for income and asset verification.

Cash-out Refinance:

Home values are on the rise across the country. Because of this, many homeowners have built substantial equity in their primary residence in just the past few years. Cash-out refinancing can be an excellent way to liquidate your home equity and then use it to purchase a vacation home.

Rental vs. Vacation Home

For some, owning a vacation home may sound like an unattainable dream. But, with the rise of services like Airbnb, it is now easier than ever to receive occasional rental income.

If you do plan to rent the property out, know that financing is different for rental homes and vacation properties. Qualifying is more straightforward when purchasing a property as a second home.

Finding your dream

The market for lake homes is heating up, and new properties are being added to the market daily. If you are not already working with an agent, we would be happy to recommend some REALTORS that specialize in lakes country. They will take the time to help you find your perfect home away from home.

Once you have found a property, your First Class Mortgage consultant will help you determine the best way for you to purchase it.

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If you are like most first-time homeowners, your first mortgage was an FHA loan. Your FHA loan gave you the ability obtain financing, requiring only minimal down payments and fair-to-good credit scores. While this was a perfect fit for you at the time, you now may be looking to save some money. One way to do this is to refinance into a conventional loan.

One significant advantage of switching to a conventional loan is that, with the right loan-to-value ratio, it can eliminate mortgage insurance. While conventional loans have stricter credit requirements, and typically require borrowers to have at least 20% equity in their homes, any mortgage insurance provision cancels once your house reaches a 78% loan-to-value ratio.

Additionally, refinancing to a conventional mortgage may allow you to take out a larger home loan.

Refinancing does come with costs, such as closing fees, and may require you to present many of the same documents during the application process as you did with your original home purchase. Plus, you may also need to pay for an appraisal of your home.

Checklist: When Is a Good time to Refinance from an FHA to a Conventional Mortgage?

If you’re still not sure whether you should refinance from an FHA loan into a conventional mortgage? Take a couple of minutes to answer the following questions. They can help you decide if a refinance is right for you.

1. What are my goals?

2. Does refinancing make financial sense?

3. What is the current value of my home?

4. What is my existing home equity?

5. Can I afford the refinancing closing costs and fees?

6. Can I provide all of the necessary documentation?

Considering a Refi? Let us help!
Our expert mortgage consultants can help you evaluate your current loan situation and help you identify if a refinance is right for you. Give us a call today!

Source: PennyMac, Link

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As a First-Time Homebuyer, it is a good idea to start the pre-approval process before looking at homes. You will know what price range you are pre-approved for, so that you aren’t looking above or below your price range. In today’s market, homes can sell quickly. If you are pre-approved, your pre-approval letter shows sellers that you have the financial backing to make a solid offer.

As a first-time homebuyer, you have many financing options. First, you could go with a traditional conventional 15- or 30- year loan or FHA 15- or 30-year loan. Maybe your new home would qualify for a USDA loan. Are you a veteran? If so, a VA loan may be your best option. Meeting with a loan officer, in Fargo, ND, Maple Grove, MN or Grand Forks, ND, helps you understand the ins and outs of all your financing options. This will give you peace of mind when you are shopping for the right home. You know that you have the best financing option available when you run across the home of your dreams!

Meeting with a loan officer will allow you to understand what you may need to do to close on a home. How much money do you need to save for a down payment? Will you be required to have money set aside for an escrow account for your homeowner insurance and taxes? Is your credit score where it needs to be? After meeting with your mortgage consultant, you will have a clear and realistic understanding of what you need to close on your first home!

The first step in the pre-approval process is starting an application. You can Apply Online Here. 

Are you interested in consulting with a loan officer prior to applying online? Contact Us Today

Our Maple Grove office is having two Homebuyers Social this month! Come and learn about the purchasing process. There will be free drinks and appetizers and time for Q&As. RVSP Today!

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