Buying a dream home is one of life’s most significant decisions. However, as their financial condition improves, many people consider buying a second home for residential, commercial, investment, or leisure purposes. They might have obtained the lowest home loan interest rate on their current finance, but are they eligible for a second home loan with similar terms and conditions? Several factors come into play when getting approved for a second home loan. Let’s look at a few of them.
Everyone wants to build an empire for themselves and their offspring. However, their financial condition matters a lot for their expansion. Those who already own a home do not pay any rent. They have a roof over their head that they can call their home. So, there is no hurry to buy a second home. An individual considering purchasing a second home must assess the financial condition carefully rather than deciding on impulse.
A borrower with a history of missing EMI payments will have difficulty getting a second home loan. Inconsistent payments project an individual as a high-risk borrower. Even if they are far from default, the lender will not prefer lending more to a borrower who does not pay EMIs regularly on time. Whether out of financial problem or negligence, missing payments leads to inconsistent repayment history that makes a second home loan challenging to achieve.
A second home loan is not advisable if the borrower has a low income. Handling two home loans simultaneously makes EMI management challenging. Not all borrowers have the repayment capacity to repay both EMIs on time. So, the borrower’s repayment capacity is a crucial factor to take into account while completing the home loan apply online procedure.
The debt-to-income ratio is the percentage of income an individual spends each month on the existing financial obligations. Ideally, their regular monthly expenses should not consume more than 50% of their income, including their current home loan EMIs. If their DTI ratio exceeds 50%, the lender may perceive them as high-risk borrowers with higher chances of missing payments and loan default. So, the prospective borrowers must assess their DTI ratio before applying for a second home loan.
An individual’s credit rating depends on repayment history, credit length, portfolio diversity, DTI ratio, credit utilisation rate, and several other factors. The first step is to check the credit report, look for any errors that might be holding the score down, and bring them to the credit bureau’s attention to get them corrected. Next, always pay existing EMIs and credit card bills on time, clear all outstanding balances, minimise credit card usage, and find ways to increase income to improve the credit rating. A borrower who maintains a credit rating of 700 or above will have an easier time getting a second home loan at the lowest home loan interest rate.
Many reliable lenders sanction up to 90% of the property’s cost as the first home loan. However, they reduce the LTV ratio to 70-75% for a second loan application. That means the borrower must be ready to pay a higher down payment for a second home loan. So, it’s essential to assess the finances and check if a bigger down payment is possible.
Choosing the loan tenure carefully becomes more critical when taking a second home loan. Since the borrower is already servicing an existing home loan, adjusting another home loan EMI into their monthly budget may stress their finances severely. In the case of a tight budget, it’s wiser to opt for a longer loan tenure to reduce the EMI amount and make it more manageable. However, remember, it will result in a higher interest outgo by the loan term-end. So, take a second home loan diligently.
Relationship with the Current Lender
The borrower’s relationship with the current lender matters significantly for the second home loan application. If the borrower has a history of repaying EMIs consistently and showing responsible credit behaviour, they build trust with the lender and have an easier time getting approved for a second home loan. Taking into account the above factors, it’s essential to take a rational decision and assess the finances before availing of a second home loan. Since it will be a costly affair for most, compare the lenders carefully and find the one offering the lowest home loan interest rate.