Buying Your Second Home:
The Ultimate Guide

Buying a second home in a region with a robust housing market can be a great investment opportunity. Properties generally appreciate in value over time, meaning you should profit from your second home if you decide to put it up for rent or choose to re-sell it in the future.

However, buying a second house is a big decision, so only take this leap if you are financially ready and have spoken to a trusted mortgage broker.

To secure a home loan for your next property purchase, you’ll need to gather necessary financial documents, such as recent evidence of your income (payslips) and current bank statements. Ensure your finances are in order and take time to research which lenders are more likely to approve a next home purchase loan.

To maximise your chances of securing loan approval, the best thing to do is talk to a professional who can help you manage your funds and liaise with your current and new lenders.

We recommend talking to one of the professional brokers at North Brisbane Home Loans for some free expert advice, formal assistance and access to all the best home loan products.

Most lenders will require a borrower’s deposit of at least 5-20% of the total property price. So, if you’re buying a property that is worth $595,000, you’d need a minimum deposit of $29,750 (5%).

But keep in mind that if you’re borrowing more than 80% of the purchase price, you’ll also need to factor in the cost of Lender’s Mortgage Insurance (LMI). To avoid LMI when buying a second property you’ll need to have access to a deposit equivalent to 20% of the purchase price.

There is no “one size fits all” option when it comes to home loans. There isn’t even a “one size fits most.” This is why it makes sense to talk to a broker before applying for any finance.

At North Brisbane Home Loans, we take the time to talk things through, do the research and compare suitable loan products before we start making recommendations to our customers. So, our clients can rest assured they’ll get the right home loan product to suit their needs.

Unlike a standard mortgage, which is paid back in instalments over 30 years, a bridging loan is designed as a short-term stop-gap measure. The length of a bridging loan is typically only 12 months in total since it is designed to be paid off in full as soon as your first property is sold.

Since bridging loans are available with interest-only repayments, they can make it easier to manage two mortgages during the interim period between buying and selling.

If you have built up equity in your current property, then this can be used as a deposit on the purchase of your next home.

How does using equity to buy a second home work? Well, imagine you purchased a property 10 years ago for $300,000. Since then, you’ve reduced your mortgage balance down to $180,000. But during those 10 years, the value of your property has also gone up by an estimated $220,000.

This means that you owe $180,000 on a property that is now worth $520,000. As a result, you have $340,000 in equity, which you can use as a deposit to secure your next mortgage.

Using equity to buy a second home comes with various pros and cons, so it’s important to consider all the ramifications in detail before you make a final decision.

For example, accessing the equity in your home will increase your debt, take longer to repay and may lead to higher repayments.

However, accessing your equity can put you in a stronger position as a borrower. If your cash deposit is less than 20% of the purchase price, then accessing your equity could save you from paying Lender’s Mortgage Insurance. A higher deposit (thanks to equity) may also mean that you’re eligible for a better range of products, which could result in future savings.

Some lenders will offer interest-only loans to borrowers who are looking to finance their next home. This means you’ll only have to make repayments on the interest accrued and not on the amount that was borrowed (referred to as the ‘principal’).

The interest-only period will only apply for a set time (usually 1-5 years), after which you’ll be required to start making repayments on both the principal and the interest portions of the loan. This sort of loan can be beneficial for next home buyers who want to purchase an investment property in Brisbane or who are planning to sell their current home only after they move into their new home.

For more information on interest-only loans and whether or not they may suit your circumstances, talk to one of our experienced brokers.

When you’re planning to buy a second home it’s important to factor in all of the costs, not just the property purchase price. This could include conveyancing fees, pre-purchase inspections, stamp duty, loan application fees, council rates and the cost of relocating to the new property (this is particularly important if you’re moving to a new area).

The total amount you can borrow will depend on your current financial situation, including your assets, expenses and employment situation. You’ll also need to consider how much of a deposit you have saved or how much equity you have built up in your current property.

For an estimate of how much you can afford to borrow, try using our free online calculators, or for a more detailed assessment, make an appointment with one of our brokers.