Finances before the hunt for second home
Buying a second home is an exciting prospect. Do more than find the best home loan interest rate - complete pre-approval too! Here are three reasons why you should sort your home mortgage before you start looking for a second property.
Is your current home failing to meet your needs?
Perhaps you want to live in a different location to have better access to well-serviced public transport routes.
Or it could be the case that what was right five or 10 years ago is now too small. Perhaps you're in a position to afford a nicer, roomier home.
Before you jump into finding a new property, it's essential to do the financial groundwork.
While attending open inspections is arguably more fun than sitting down and going over your finances, it can prevent disappointment later on.
Here are three reasons why you should sort your home mortgage before you start looking for a second property.
There's a key difference between what you believe you can afford and what your lender's opinion is.
While lenders are experts who are dedicated to working with you so you can secure the property that's perfect for you, they do have to work within the bounds of the law and act responsibly when taking on securities.
For this reason, it's well worth sorting out your finances before you even start looking.
Though this might seem tough - particularly if there are enticing open inspections in the coming weeks - it will provide you with greater certainty when you do choose to start seriously considering homes.
The certainty you'll have regarding whether you can afford to look at particular properties for sale will give you greater peace of mind.
Pre-qualification versus pre-approval
There are various steps when it comes to applying for a home loan and the first is pre-qualification.
Whether you're sticking with the same lender or opting to find a more competitive rate elsewhere, you'll need to go through the pre-qualification process.
This step is easy and can typically be done online. It can give you an idea of how much you could borrow depending on your income and credit history.
However, the lender still has to be diligent and actually check the information that you've supplied is accurate.
Because of this, a loan pre-qualification can't be completely relied upon.
However, if you get loan pre-approval, you'll have a far more exact idea of how much you'll be able to borrow - and therefore, what properties you can look at.
Pre-approval requires more paperwork, but it's for the benefit of your lender - as a security holder - and for you, as a long-term borrower.
This step could take a week or two, but once you have it, a loan pre-approval can be valid for many months. Obtaining it puts you in a position to look at homes within your budget, confident that when the right property comes up, you'll be able to make an offer on it.
Be taken seriously
If someone is selling a property and there are two potential buyers - one with pre-approval and one without - who do you think is going to be taken more seriously?
While it's quite possible that someone without these credentials could still really want to buy a certain home or could get approval, it will still hold up the process.
If a seller is in a rush to move their property on to a willing buyer, it's quite plausible that they're more likely to consider someone with pre-approval.
If you've completed the financial groundwork it leaves you in a position where you can negotiate with a home seller without being unsure of your position.
It also gives you both an opportunity to negotiate the sale with a lot more confidence, as it's less likely to fall through.
Image credit: pallspera.com