While commonly associated with investment purposes, getting a second home can be used for multiple reasons, such as:
The deposit for a second home
The process of getting your second home will be similar to getting your first home. You will need to have your financial situation assessed to determine your borrowing power, this will take into account your current home loan repayments as well.
The deposit required for your second home will likely need to be at least 20% in order to avoid paying lenders mortgage insurance (LMI). If you have not got a 20% deposit saved up, you may still be able to get a mortgage for your second home by paying LMI or using the equity in your home, if possible.
Home equity is the difference between your property’s market value and the remaining balance of your mortgage. Therefore, if you’ve owned your home for a few years, it is likely that you have built up some equity on the property through paying down your home loan and if your property’s value has increased in that time.
If you have enough equity in your home available, you may be able to use that as additional security on the loan for your second home, as an alternative to a cash deposit.
Buying a second home as an investment
A second home can be a great way to get into the property investment market, as you will already be familiar with the process of buying and owning a home. When looking to buy an investment property as your second home, it’s important to look for an investment property that is both affordable to your situation and in an area that has a high tennant appeal.
If your second home is your first entry to owning an investment property we have created a beginners guide to get you started. This will go through the key steps to be considered when owning an investment property including establishing goals and creating a plan, understanding the costs involved and what’s involved when applying for an investment property. For more information read our guide here.
A key consideration when buying an investment property is to understand the rental returns that you can expect to receive. This return is also known as rental yield, and is calculated by measuring the gap between your overall costs and the income you receive from the rent on your property.
Buying a second home as a holiday home
Purchasing a second home can be for more than just investing. If you’re ready to buy a second property for yourself, you can explore the option of getting a holiday home.
Having a holiday home can be a great reason to get a second home for residential purposes, while also giving you the option to rent it for short term periods, during peak seasons or when you’re not holidaying there. It is important to understand that you will need to maintain the costs of two mortgages, especially in periods where you are unable to get rental income when there is nobody looking to holiday there.
You will also need to consider the location of your holiday home for multiple reasons. If you choose to purchase a holiday home that is a considerable distance to your primary residence - in another state for example - you will need to consider the costs of managing the home and ensuring that there are no major damages that go unchecked for long periods of time. By having constant maintenance on the home this may help prevent further damages and save you in the long term. Other considerations for the location of your holiday home is understanding the area you are purchasing, in terms of future growth and developments and also making sure it's a location you are looking to consistently go to for holidays as it’s likely to be a long term purchase.
Once you’ve factored in the location of your holiday home and your budget to ensure it is affordable, you’re ready to speak with a Mortgage Choice broker who can help you find the right loan for your second property!
Other costs and considerations
Lenders Mortgage Insurance (LMI)
If you’re borrowing more than 80% of your second property’s value, it is generally a condition of the loan that you will pay LMI.
Should you invest in a holiday home?
Don’t forget to weigh up the different costs associated with owning a holiday home. Here we explore some of the main pros and cons.
Property investor guide
Successful property investing calls for one key ingredient - planning. Here we outline the major steps and costs associated with an investment property.
What is home equity?
Home equity can be used as a deposit for your second home. Understand what home equity is and how to calculate how much you may have available here.