Guide to Buying a Second Property

Buying a second home is an exciting opportunity. You can take advantage of investment prospects or simply improve your current lifestyle, but taking on a second property is no joke. You need to spend a lot of time, money, and effort to make a successful second home purchase. To prepare for all this, consider the following when buying a second property. 

When is it a good time to buy a second home? 

The best time to purchase a second home is when your finances are in a good place, you’re capable of managing another property, and you know exactly what owning another home entails. 

You have the budget for it 

First and foremost, look at your finances. See if your budget can handle the expense of a second home purchase. As a homeowner, you know that the actual cost of buying a property includes the maintenance and upkeep fees. 

Checking your finances is especially important for those still paying off their current mortgage. Paying two home loans may seem manageable on paper, but could quickly become overwhelming once it starts.

You know what to use it for 

Owning one home is already a serious commitment. If you’re thinking of adding one to the equation, make sure you have a clear plan for it.  

Ask yourself what you want out of your second home. Are you going to rent it out for extra passive income? Is it going to be a holiday home? Are you planning on moving there when you retire? 

Benefits and drawbacks of buying a second home 

To make an informed decision, you need to know about the potential advantages and disadvantages of buying a second home.  

Benefits of buying a second home 

• Could be used as a holiday home. 
• Option to move into for retirement. 
• Potential for property value appreciation. 
• Generate passive income by renting it out. 
• Opportunity to diversify assets and investment portfolio.

Drawbacks of buying a second home 

• Additional homeownership expenses. 
• Landlord responsibilities. 
• Risk of vacancies for rental properties. 
• Changing tax implications

Different ways to buy a second home 

There are a few methods for buying a second property. Every finance option has its own pros and cons. It all depends on your financial situation and what you’re using your next home for. 

Buying a second home with equity 

Using equity to buy a house is one of the more common ways to purchase another property. You can leverage your current home’s equity (i.e., the value of your home minus the amount still owed on the loan) to buy your next property. Use an online home equity calculator to get an estimate of usable equity at an 80% loan-to-value ratio. 

You can access your equity through refinancing, a line of credit, a lump sum, or cross-collateralisation. If you want to learn more about how to use equity to purchase a property, it’s best to speak with an expert or lending specialist. 

Using a home loan from a lender 

Taking out a home loan to buy a second property is a familiar process for homeowners. Just like with your previous or existing home loan, you need to do your due diligence and find the best deal possible. Interest rates, loan terms, and features may have changed slightly since first taking out a home loan, so it’s best to refresh your knowledge by doing a bit of research. 

You can try shopping around to see what kind of home loans are being offered. Or apply for another home loan with the same lender you have now. Doing so may be more convenient and streamline the application process. 

Applying for an investment property loan 

If you’re using the second property for investment purposes, you’ll need an investment home loan. Generally, investment home loans have higher interest rates than standard home loans. But you can still find low rate investment finance to help you save on overall costs.  

Investment home loans work similarly to the typical home loans. After being approved, you’ll pay off the principal loan plus interest over an agreed-upon period. Where they differ is the criteria lenders use before approving new borrowers. Lenders usually consider potential rental income and the appreciation of the property.  

Choosing the right finance option 

Securing a good home loan can make a significant difference in your personal finances and investment goals. It’s important to find a finance solution that lets you save money and has features that help you manage your loan. 

At loans.com.au, we offer a range of home loan options from the standard home finance to investor loan packages. Finding the ideal finance solution for your second home is the first step to a successful home purchase. 

For more information about your home loan options, get in touch with our friendly lending specialists. Contact 13 10 90 or arrange a call at your convenience. Ready to get started? Apply online today! 

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