Getting a second mortgage when buying a second home

New Zealand has always embarked on its love for properties as a way of building wealth. Buying a second home either as an investment goal or as a holiday getaway is a smart way of making some additional income or wealth to include in the retirement fund. It is just as exciting and equally daunting as buying your first property with the addition of handling two real estates at a time.

There are many reasons that can aspire you into buying your second home like down or upsizing from your current property, supporting a growing family, or starting out a rental property portfolio, etc. Owning a second property can be an appealing prospect and is both a luxury and a challenge. You will need make to some really important decisions when looking at buying your second real estate. In addition, being an existing property owner, you are likely to already have the wisdom from your past purchase experience to draw on. However, effective ongoing market research prior to buying an investment property will help save you thousands.

If you would like to apply for a second mortgage, it is important to keep in mind that affordability checks have become increasingly stern. You will need to prepare evidence to the lender that you are fully capable of covering the cost of two mortgages at once. Is it good to check with a mortgage broker when calculating your capability of buying a second home, as they have the market knowledge and know how to easily deal with the application process.

One of the first steps towards buying a second home is to establish how much deposit do you have. If you have considerable equity in your first property, it can be an excellent start towards buying your next one. The first property can be used as a stepping stone towards the next one, as you have the option to use that equity to fund the deposit for the second mortgage.

Equity is the percentage of your property outright owned by you. It is counted as the total market value of your property minus the outstanding mortgage you owe the lender. This value also includes the amount of profit you have gained in the duration of owning the property. As a general rule, you can borrow up to 80% of your existing property.

For example, if your first property is worth $800,000 and you owe the lender $400,000 on the mortgage, you will have $240,000 in equity you can invest in the new purchase.

To get the best of your existing property, it is advised for buyers to have paid off some of their mortgages to build the equity required to move ahead with purchasing an investment property. A minimum of 2 to 3 years is a good period to starts investing since your first home purchase.

If your current property does fulfill the basic requirements of being used as equity, or if you cannot afford to have two mortgages, you can choose to fully sell it and buy a new one. There can be many underlying conditions for one to consider this option like having to upsize for a rapidly growing family, wanting a new build property, etc. When taking this route, it is best advised to sell the existing property before you buy the next one. This allows you the advantage of knowing the exact amount you have on hand for the deposit and the price range you can potentially search into. With this, you will also have the leverage for being an unconditional buyer, which places you in a solid position to negotiate when you find the perfect property.

There are a lot of different things to consider when buying a second home, our experienced broker would love to help you go through the process and all aspects of purchasing a second property. If you would like to know more about growing your property empire and make your mortgage work for you, talk to our expert broker today.

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