According to the Federal Housing Finance Agency (FHFA), second-home mortgage rates are going up in 2022 and 2023. They announced targeted increases to Fannie Mae and Freddie Mac’s upfront fees for second home loans will be increasing. So, if you’re planning on purchasing a second home in South Carolina, it’s time to start budgeting for a higher mortgage rate.
What does this mean for buyers of second homes?
The changes mean that buyers can expect an increase between 1.125% and 3.875% for second home loans, in their interest rate when they apply for a loan to purchase a second home. This may not seem like a lot, but over the life of a 30-year mortgage, it could add up to thousands of dollars in additional interest payments. Fannie Mae says a second home mortgage with a loan-to-value ratio equal to or less than 60% will pay an additional 1.125% fee. But with less money down and a loan-to-value ratio of 80% or more loan-to-value or greater, the fee is an extra 4.125%.
How Your Down Payment Affects Your Monthly Mortgage Payment
Your down payment affects your monthly mortgage payment because it impacts your loan-to-value ratio (LTV). Your LTV is the amount of your loan compared to the appraised value or sales price of the home you’re purchasing (whichever is less). A higher LTV ratio means you have a smaller down payment and more debt; a lower LTV means you have a larger down payment and less debt.
For example, if you’re financing a $250,000 home purchase with a 20% down payment of $50,000, your LTV ratio would be 80% ($200,000/$250,000). But if you put 10% down instead ($25,000), your LTV would increase to 90% ($225,000/$250,000) and so would your monthly mortgage payment increase per month which can make a big difference per year.
While putting less money down will usually mean having to pay more each month in order to finance your loan over its lifetime, there are other factors that can help offset that monthly increase such as taking advantage of larger tax breaks with a lower mortgage balance or having more lenient approval requirements with government-backed loans like FHA loans.
When deciding how much of a down payment to make on a second home purchase, it’s important to consider how it will affect your monthly mortgage payment. A larger down payment will usually mean a lower monthly payment—but there are other factors to consider as well such as the size of your tax break and approval requirements for government-backed loans. Work with a local lender to find the option that makes the most sense for your financial situation.
Is now a good time to buy a second home?
Despite the projected increase in mortgage rates, now may still be a good time to buy a second home. Mortgage rates are still near the average, and there is expected to be an increase in inventory as more sellers put their homes on the market. So, if you’ve been thinking about purchasing a second home, you may want to start your search sooner rather than later.
If you’re planning on purchasing a second home in South Carolina, it’s important to know that mortgage rates are expected to go up in 2023. The Federal Housing Finance Agency has announced targeted increases to Fannie Mae and Freddie Mac’s upfront fees for second home loans which will take effect in January. While this may not seem like a big increase, it could add up to thousands of dollars over the life of your loan. However, now may still be a good time to purchase a second home as mortgage rates are near historic lows and there is expected to be an increase in inventory.
How to Afford a Second Home in South Carolina
A second home is a big purchase—but it doesn’t have to be out of reach. With a bit of financial planning, you can make your second home dreams a reality. In this blog post, we’ll explore some creative financing options for second-home buyers in South Carolina.
Private Lenders
One option for financing a second home purchase is to work with a private lender. Private lenders are individuals or groups who are willing to loan money for the purchase at a higher interest rate than what you would get from a bank. The benefits of working with a private lender include finding someone who is willing to work with you on terms that fit your budget and timeline. The downside is that private lenders may not be as regulated as banks, so it’s important to do your homework and make sure you’re working with a reputable lender.
Home Equity Loan
If you have equity in your primary residence, you may be able to take out a home equity loan to finance the purchase of your second home. A home equity loan is a loan that is secured by the equity in your home—in other words, the portion of your home that you own outright. The benefits of taking out a home equity loan include lower interest rates and potential tax deductions. The downside is that if you default on the loan, you could lose your primary residence.
Self-Directed IRAs
Another option for financing a second home is to use funds from a self-directed IRA. A self-directed IRA is an individual retirement account that allows you to invest in alternative investments, such as real estate.
Buying A Second Home
A second home purchase can be a great investment, but it’s important to consult with your financial planner and local real estate expert to make sure you’re getting the most out of your investment. -Your goals for the property will help determine what kind of property you should buy. If you want to use it as a vacation spot, then you’ll likely look for something in a popular tourist destination. If you plan on using it as an income property, then you’ll need to consider things like zoning laws and rental potential. -Local market conditions are also important to consider when purchasing a second home. Make sure that the market where you want to buy is stable and has healthy appreciation rates so that your investment will grow over time.
There are plenty of options available for second-home buyers looking to stretch their finances further. By considering all of your options and consulting with Jerry Pinkas Real Estate Experts 843-839-9870 help you can find the perfect financing solution for your second home purchase.
