If you’re looking to jump into a condo as a second home because interest rates are so low you might be on to something. I have to admit that I would only buy a second home if I was going to use it a rental rather than a vacation home but that’s just me. Vacation homes rarely work out financially in my experience.
Anyway, if you decide to go for it you still have to be smart about financing. The good news is that with a little bit of planning, you won’t find it difficult to get a mortgage for your second home.
Your goal is to make sure you get a conforming 15, 20 or 30-year loan. That way the rate will be cheaper and your down payment will be lower. If you don’t get a conforming loan, you’ll have to put a full 35% down and pay an extra 1% in higher annual interest many times. Yuk.
How do you get a great mortgage for your condo as a second home?
To start, don’t buy new properties – stick with established projects if you are in the market for a condo. That’s because conforming loans must be for properties where at least half the other homes are owner-occupied. And find out how current the other owners are on their condo association dues. If more than 15% are in arrears, you won’t be able to qualify for a conforming loan.
Find out how many people own property in the project. If one owner holds more than 10% of the units, you’re also going to be out of luck on qualifying for a conforming loan. Also, look into how solvent the association is. They should have at least 10% of their total budget in reserves if you want to get that juicy conforming loan. The bank will be looking so you should too.
Different states have different requirements too. It’s easier to get loans in some states than in others. Keep that in mind when you go shopping for property. Find out if the complex you are looking at is already approved by the FHA.
The good news is you don’t have to have perfect credit scores in order to qualify for these loans. Even if you have a score of about 660 or better, you should be fine. Make sure to get rates for 30-year fixed, 15-year fixed and adjustable rate loans.
Of course you could do all these things and still face an uphill climb. Condos got hit hardest when real estate hit the skids. Many lenders are still licking their wounds, and some are very averse to making loans on condos. Make sure you discuss this with your real estate agent before buying anything.
Finally, if the bank you’re dealing with already holds too many loans in the project you’re looking at, they may make it especially difficult to get the loan approved.
These are action items that most people don’t think about before the dotted line, but you should. Are you buying a second home? How are you going to finance it?