Sourcing for Success Financing for Second Home Loans
You only have to read the newspapers and observe the recent flurry of television programs to realize theres a boom going on in property, and in the mainstay it is towards continued investment in second homes. Of late second home purchases have represented a significant percentage of all homes sold in the developed western world. Of particular note are investment strategies in high-demand holiday or vacation areas and high growth investment locations. Investors are now considering their second homes as better investments than stocks, with many purchasers indicating they planned to buy additional properties within two years to grow their portfolio.
Despite the boom in second homes and investment properties sources of finance for these lucrative investments have been scarce. Until recently financing for second home investments was a problem unless you had serious collateral as a down-payment. However financial institutions have recently recognized this fairly safe (safe as houses) growth area and the result is that it has become much easier to get finance to support these profitable acquisitions. A large percentage of these investments are now provided through second home loans. Financing for second home loans is now available through banks, building societies and loan institutions, who recognize both the demand for property and the potential returns. However these lenders are shrewd and also need to understand the sourcing and risk management of funding such investments.
Landlords and Mortgages
Typical of the mortgage criteria for borrowing in consideration of second home loans through financial institutions or financial service organization will be the need to see proof that the landlord is actually going to generate decent returns or cash flow from the investment. Unless of course your investment is covered by a heavy down-payment or your salary is such that you do not need to generate an income. The objective of understanding property income is to cover at minimum the majority of the costs on outgoings. Furthermore these institutions want often to understand the profits too. Often, the lender will ask for a business plan or statement of income for the property. You shouldnt count on your bank taking into account your second home's estimated rental income into consideration without a track record. The institutions may take a view that you as the purchaser/owner may veer towards an overly optimistic view of what you will receive. The lender in return may take the opposite view where they will veer towards pessimism or at best realism. Even for a property with a long rental history most professional lenders will only consider three quarters (75%) to four fifths (80%) of the value for investment. So it is very important that you consider your sources of finance, the type of finance and the value of finance before you search for property.
There are a number of sources of funds for second home loans that may be considered by investors.
The simplest and often quickest form of second home loan financing is Equity release finance. Equity release is one such source where a current mortgaged property is used as collateral for new or additional property funds. In this instance the value of a current property that you own or part own is assessed to determine how much capital is available based on the outstanding mortgage and present value. An extension to your mortgage may then be granted to support new investment initiatives. The benefit of this finance is that it is often cheaper to finance when based on the original mortgage rate.
An alternative source is Second Mortgage finance. Second mortgages are the way in which homeowners finance second home purchases by taking out a completely new property loan contract which may be linked or independent to their original borrowing. These funds may be used for down payments on 2nd homes, or for home improvements or extensions to primary residence. The benefit to this form of finance is that the finance is often associated with the original mortgage for security and subsequently may often be cheaper.
The decision to use equity release investment funds with a mortgage refinance or to apply for a second mortgage for second home loans depends primarily on the needs of your investment and your ability to repay the new loan. If you have a low interest rate and favorable terms on your existing mortgage, you may want to consider a second mortgage for financing the down payment to purchase your investment property. If you want quick, flexible and reasonably affordable finance, then a second home loan through equity release maybe a viable alternative.
In summary, consider you overall plans for investment in the bigger picture. Consider carefully the estimated return yields, the sources of finance and the investment strategy and expectations. Sourcing for success often includes a business plan and a good relationship with a financial services organization. Many entrepreneurs have succeeded by planning to succeed which is a great start point.
