When buying a second home, either for vacation purposes or as an investment, it may be necessary to apply for a mortgage, even if you already have one on your habitual residence. Banks grant them, although the truth is that the requirements for a second mortgage vary slightly. It is worth taking this into account.
Differences between a second mortgage and a first
The requirements for a second mortgage are more demanding. That's because the risk is higher. In the case of financial difficulties, a default will typically occur on this additional mortgage loan. Therefore, the conditions required are not the same as for a conventional mortgage:
• The financing percentage is reduced to a maximum of 60% - 70% of the appraisal value.
• The repayment period will be shorter than the first mortgage, usually not exceeding 20 years.
• Banks usually apply a slightly higher interest rate, regardless of whether it is a fixed or variable-rate mortgage.
• The bank may apply an opening or withdrawal fee in the event of early repayment.
Despite this, banks may also offer some advantages in the form of slightly lower interest rates if a combined product is contracted, such as life insurance, or if the salary is deposited directly into the account if it is not already.
Requirements for a second mortgage
The requirements for a second mortgage are mainly related to solvency. It is necessary to consider some fundamental aspects to apply for it with certain guarantees.
Financial stability
A larger financial cushion is needed to meet the payment of the percentage not covered by the loan plus the costs associated with buying a home. The necessary savings can reach up to 50% of the cost of the second home.
In addition, the income level must allow the payment of two mortgages. In effect, the bank will check the financial capacity and require stable income levels (indefinite employment contract and seniority in the company).
Low level of debt
Banks check that the level of debt is not high. They evaluate three issues:
• There is no other loan or credit beyond the first mortgage.
• That a percentage of the first mortgage has already been paid, generally 40%.
• That the mortgage applicant does not appear in a defaulters list.
Additional guarantees
The bank may request additional guarantees as one of the requirements for a second mortgage. This collateral can be the habitual residence or another type of property, preferably free of encumbrances. If there is no other property, the bank may accept a guarantor.
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