Financing Options for Second Home Buyers

Financing Options for Second Home Buyers

Aug 05, 2019 August 05, 2019

Purchasing a second home is embedded in the hearts of many as a sign of true success: the ability to escape to your favorite destination at-will and stay at a place you can still call home and also have it as part of your investment portfolio. Not only will it allow you to save money on lodging if you use it as a vacation home, but it can also provide you a source of income if you rent it out while you’re not using it.

There are three common options to choose from to finance the purchase of your second home, and for each you will need good to excellent credit.  Here is what you need to know about each second home loan option.

1. Take out a HELOC on Your Current Home

If you’ve owned your primary residence for a few years, chances are you’ve earned equity on the property if its value has gone up.  If so, you can take out a home equity line of credit (HELOC).  

A HELOC can help you secure the funds for a down payment or even to purchase the second home outright, depending on the price of the new property and how much equity you have acquired in your current home.

With a HELOC we see owners able to borrow something around 85% loan-to-value minus whatever your still own on your home. Lenders such as banks and credit unions offer different types of equity loans with high loan-to-value ratio.

The interest rate on a HELOC, which is typically a variable interest rate, is typically based on prime rate, which is currently low, so you may be able to get a lower interest rate on a HELOC than on a conventional mortgage.  This option also avoids some of the closing costs associated with traditional home mortgages.

A HELOC is a revolving line of credit, much like a credit card, so you can pay it down and borrow again from it as long as the line of credit is open. 

As an alternative to a HELOC you can get a home equity loan, which pays you out the entirety of the loan amount in cash once it has been issued, and as you pay down the loan you can not take money back out again like you would a HELOC. It is typically at a fixed interest rate, with set monthly payments as you pay down the loan.

Couple reviewing mortgage documents with realtor

2. Refinance Your Current Home with Cash-out

A Cash-out refinance lets you take out a new primary mortgage on your current primary home for a larger amount than you currently owe so you can take some cash out.  For example, if you currently owe $1,000,000 on your primary home mortgage and your property value has increased to $2,500,000, you can take out a new mortgage for $2,000,000 based on the new value of your home.  In this scenario, after paying off closing costs, you could walk away with almost $1,000,000 cash in hand. This could secure the payment for your second home and also possibly lower the interest rate on your primary home mortgage. 

With good credit you can cash-out up to 80 percent of your primary home’s current value with a conforming (Fannie Mae or Freddie Mac) loan. Other loans, such as FHA loans, allow you to take up to 85 percent cash-out, and VA loans for veterans may allow up to 100% equity cash-out.

The downside to this option is that your monthly payment will go up on your primary home mortgage. But in some cases, you can reduce your interest rate enough to cover the cash-out and still come out with a payment that is not much bigger than your current one, thanks to the lower interest rate.

Do the math and see if the revenues you expect to earn from the rental of your second home will cover the increase in your primary mortgage payment and make this option worthwhile. Remember to also figure in the additional financial obligations that come with owning a second home, such as insurance, taxes, and maintenance.

Crunching numbers...

3. Take Out a New Mortgage on the Second Home

This option may be the most suitable if you have already refinanced your primary home or taken out a line of credit on the equity, but the downside is that this option requires you to have already secured the down payment.

With this option you will typically need to provide a down payment of at least 20% of the property value.  You’ll have to be approved by the lender, and the loan will come with the conventional closing costs. Shop around for a lender that will offer you the lowest interest rates and best loan terms.
  

Getting a Loan for Your Second Home

Investing in a second home can be a great place to create memories.  No matter how you obtain the financing for your second home, the payoff is usually well worth the investment.

Contact Us
Sep Niakan
Broker / Team Lead
(305) 697-7667
sep@blackbookproperties.com
Request Info
By sending you agree to CondoBlackBook's Terms of Use

Your Miami Condo Awaits

Recent Posts

How to Spend the 4th of July in Miami & More Summer Events 2022 - Miami Swim Week, Rolling Loud Miami, Swedish House Mafia, Ballet Festival
Lifestyle How to Spend the 4th of July in Miami & More Summer Events 2022 - Miami Swim Week, Rolling Loud Miami, Swedish House Mafia, Ballet Festival
Summer is hot in Miami and so are the events. We’ve got all you need to celebrate July with a bang! With an overflowing events calendar this summer, you’ll be spoilt for choice. Continuing with Miami Hotel discounts and topping those with Miami Spa special savings, you won’t be able to resist a weekend or two for self-care. Music lovers of every sort are in for a treat as the Rolling Loud Fest, Miami Salsa Festival, MB Classical Music Fest, Seaside Summer Fest, and Swedish House Mafia hit the stage in Miami. There are also plenty of summer camps and activities to keep the kiddos blissfully busy. Not to forget, the Fourth of July is right around the corner and Miami’s night sky is going to be lit with fireworks and the sweet smell of all-American barbecues. Check out our special curation of Independence Day events to make the holiday even more spectacular. And, read more below for a complete list of Top Things to Do in Miami this July 2022: Things to Do in Miami - July Events at a...
The 5 Most Luxurious Condo Buildings in Downtown Miami
Real Estate News The 5 Most Luxurious Condo Buildings in Downtown Miami
Downtown is, and continues to evolve as, one of Miami’s top neighborhoods, especially because of its central location to all that Miami has to offer, its views of Biscayne Bay, and its major public transportation hubs. In recent months, developers have been delivering world-class projects with unmatched luxuries in this urban core.  Today, a host of ultra-luxury buildings call Downtown Miami home, and we’ve listed the 5 Most Luxurious Condo Buildings in the neighborhood that set the bar for top-notch living. We’ve also included a few bonus pre-construction condo buildings that will provide even more luxurious lifestyle options for you to choose from if you’re looking to move to Miami or invest in this international city. Last updated on June 23, 2022 Why Choose Downtown Miami? Downtown is home to some of Miami’s best art, culture, shopping, entertainment, and social hotspots. It not only ties for #1 on our 11 Most Walkable Neighborhoods in Miami report, but is also the best...
Video: Agent Faves - Our 3 Favorite Condo Buildings in Sunny Isles Beach, Miami
Video Blog Video: Agent Faves - Our 3 Favorite Condo Buildings in Sunny Isles Beach, Miami
Close enough to all the action in Aventura and Miami Beach, yet far enough removed from touristy chaos, Sunny Isles Beach has turned into a darling for luxury developers in recent years. This upscale seaside community is home to an enviable collection of luxury-branded, high-rise condo towers, such as the Porsche Design Tower, Estates at Acqualina, Mansions at Acqualina, Turnberry Ocean Club, Muse, Jade Signature, and each one more luxurious and beautiful than the next. But we have a few that top our list of favorites. Check out Blackbook Properties’ Condo Specialist and licensed agent Vera Berezhnaya talk about her top 3 favorite luxury condo buildings in Sunny Isles Beach: Residences by Armani/Casa What we love about this building? Every unit in this oceanfront high-rise features a summer kitchen.  Milan couture meets Miami charm in this 66-story ultra-luxury high-rise. Besides affording private beach access, this 649-foot glass tower features 308 designer condos with interiors...
The Top 10 Miami-Area Beachfront Condos in Preconstruction Right Now!
Real Estate News The Top 10 Miami-Area Beachfront Condos in Preconstruction Right Now!
What’s more popular than Miami and South Florida’s sensational beaches these days? It’s our upcoming beachfront properties that are topping wishlists across the globe – luxury created for buyers from New York to New Zealand!  Regardless of whether you’re looking to move to the beachside for dazzling morning-to-night water views, instant access to a yachting lifestyle, or simply for bragging rights – an oceanside home in South Florida tops the wishlist for many - there are several upmarket projects on the horizon that offer you an oceanfront address. With developers eager to stay relevant in Miami and South Florida’s growing condo market, there are plenty of luxury, oceanfront condo preconstruction projects in the pipeline. Here’s our list of the Top 10 Upcoming Luxury Beachfront Condo Projects in Miami and Pompano Beach: Miami and South Florida’s Beachfront Condo Preconstruction projects at a glance: The Perigon - Mid-Beach Bentley Residences - Sunny Isles Beach St. Regis Residences...
Video: Comparing Miami’s Best Neighborhoods - Coconut Grove vs Brickell
Video Blog Video: Comparing Miami’s Best Neighborhoods - Coconut Grove vs Brickell
When most people are thinking about moving to Miami, two super popular neighborhoods are Coconut Grove and Brickell. These two neighborhoods are pretty much neighbors, and only about a 5-10 minute drive separates them. But they are very different and offer completely different lifestyles and vibes. So, how can you know if Brickell - the Manhattan of the South – is right for you? Or will the laid-back and tropical Coconut Grove neighborhood be better? Check out our video comparing these two Miami neighborhoods to help you decide which one could be your next home.  Coconut Grove vs Brickell While both areas provide plenty of variety in housing options, they also offer differing lifestyles and benefits. We’ve provided a comparison of these two popular Miami neighborhoods based on categories we think are important to living a good quality of life – things like lifestyle, parks and green space, shopping, entertainment and culture, walkability and transportation, and cost of living...
42 Pine: Boutique luxury and Kosher-friendly in Miami Beach
Preconstruction 42 Pine: Boutique luxury and Kosher-friendly in Miami Beach
It’s beautiful. It’s boutique. It’s Kosher-friendly. And, it’s in Miami Beach. Developer JP Roosevelt LLC, an entity managed by New York’s Boylmelgreen family, recently launched early sales and secured a $35.5 million loan to start the boutique condo project in the exclusive Pine Tree Drive area of Miami Beach. At only 8 stories, 42 Pine will offer 1 - 3 bedrooms residences, starting at 700 square feet and going to 2,700 square feet. Set for a 2023 completion, early friends and family pricing start at $700,000. Its eight exquisite penthouses start from $4 million.  Designed to offer modern luxury for Jewish residents, 42 Pine will feature gourmet Kosher kitchens, offerings two sinks, two sets of appliances, and separate cabinets for meat and dairy dishes – a true one-of-a-kind condo project in Miami Beach. 42 Pine: A Luxurious Hill Town in Miami Beach  42 Pine will be an 8-story condo community with 50 move-in-ready residences. Designed by Miami’s award-winning Arquitectonica,...