Are you thinking about buying a second property? You might be wondering what goes into making the process run smoothly. You’ve come to the right place!
By knowing the ins and outs of second home financing, you can make plans to set yourself up for success! This can help you avoid common pitfalls and make the most of your investment in support of a robust long-term financial plan and investment strategy.
Wondering where to begin to it comes to financing the purchase of a second property? Here’s everything you need to know.
Securing a deposit
The first step is understanding your deposit requirements. Just like your first property purchase, you’ll need a deposit to buy your second home. But things work a little differently.
When buying a first home, your deposit needs to be a contribution towards the property purchase price, usually to a value of at least 20%. This is also true for a second property purchase.
However, with a second home, your deposit doesn’t necessarily have to be cash. You may be able to access the deposit you need by refinancing your existing home loan to access equity.
Working with equity
Your equity is the amount that you have already paid off your loan. Getting an equity release can help you access the required funds to purchase another property.
In most cases, your lender will need you to leave enough equity behind that you maintain a loan-to-value ratio (LVR) of at least 80% in your first home.
Ideally, you need enough equity that you can provide a substantial deposit towards your new property purchase while still maintaining a good equity share in your existing property.
Exploring lending options
Next, it’s time to consider your lending options to identify the right loan packages for your needs. These might be with your existing lender or with someone else.
The best approach is to work closely with a skilled mortgage broker. Your broker can help you evaluate equity and serviceability, as well as identifying the best loan offers for you.
When assessing your loan options, remember to think holistically. Consider how you will continue to make repayments on both of your properties, now and in the future.
Other important considerations
Before you sign up to purchase a second property, there are a few things you should consider to ensure you’re making the right choice.
First, think about your usable equity. Have you spent enough time paying off your first home that you have a decent equity release available to support another purchase?
Next, consider your savings. Buying a new hoe can be expensive. Do you have extra funds available to cover fees or supplement equity if needed?
Then reflect on incentives that helped you purchase your first property. Did you take advantage of a first home buyer’s grant scheme? Are you prepared to pay more now that this isn’t available to you?
Finally, make sure that you have the long-term financial stability needed to pay off two mortgages simultaneously. Do you have a back-up plan if your financial situation changes?
Ready to purchase your second home? Don’t navigate the complexities of the process on your own! Contact the best mortgage broker Sydney has to offer. Speak to the team at Our Top 10.