Financing a Second Home? Use a Home Equity Loan

When you take out a loan to buy a second home, banks will scrutinize your credit reports and income documentation very closely. They want to ensure that you have sufficient income to meet all your obligations. But if you have a good credit score and a valuable first property to use as collateral, getting approval for a home equity loan is usually an easy process, and may be a less expensive and speedier one than opting for a traditional mortgage loan.

Advantages of Home Equity Loans

By using a home equity loan, you may be able to avoid some of the closing costs associated with originating a completely new and separate mortgage. There are also specific tax benefits, in the form of deductible expenses, which are allowed for those who take out home equity loans. If you do a little homework and crunch the numbers, you may discover that a second home is less expensive than you thought, and comes with interesting perks. One of the best benefits is that you can rent out your second home to tenants when you're not using it as a vacation property for your own family.

Second Home for Income Production

A second home can actually help you earn extra income. If you buy from someone who rented or leased the house for profit, you can prepare a financial statement based on the past income history of the property and show it to your lender. By reviewing the records, a bank or mortgage company will see that the property will probably not be a financial liability, but may actually add extra net income to your bottom line. You may also want to hire a professional appraiser to do an objective market analysis of the property. By comparing it side-by-side to similar income-producing properties in the same neighborhood, an experienced appraiser can ascertain a home's future income potential with remarkable accuracy.

If you're fortunate enough to be able to afford a second home, you're smart enough to investigate a variety of ways to pay for it. A home equity loan may be the most intelligent way to go. To paraphrase an old expression, "Home is where the equity is".