Is it worth having two home loans?

Managing a mortgage loan is a huge responsibility, and for many homebuyers it’s a once-in-a-lifetime experience. However, what if you are interested in acquiring a second property?

We consider the possibility of acquiring a second home loan, the benefits attached to this, and, should you qualify, some practical tips that you should keep in mind.

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Will you qualify for two home loans?

Carl Coetzee, CEO of BetterBond, says that it’s possible to qualify for two home loans if your lender determines that you have the financial means to afford both.

Andrea Tucker, director at MortgageMe, notes that the process will be the same as with your initial home loan application.

“If you go through the mortgage origination process, the banks will need to evaluate your credit record and ability to pay off additional debt, on top of the debt you’re already paying,” she says.

She explains that it’s all about your debt-to-income ratio. If your creditor believes that you will not be able to take on more debt, they will reject your application.

If you decide to pursue a second property, Coetzee believes that there are two non-negotiables you need to have in place - these being an experienced real estate agent who can manage the sale (if applicable) and purchasing of your properties simultaneously, and a bond originator. The latter will assist you with the financial aspects, such as securing a home loan through your chosen lender.

The benefits of being a second-time homeowner

Tucker says that second-time homeowners can benefit from their previous experience, such as appreciating the time it can take to find the perfect property.

“You’ll remember how important it was to get the best offer of finance through the origination process, how long it took to register the bond and transfer the property, and how many attorneys you needed to deal with,” she says.

An additional benefit is the possibility of using your first property to generate rental income, making it self-liquidating, while you pay off the new bond on the property you live in.

“Banks will only take rental income into account if you have proof that the property is being rented out, and you can show that rent has been regularly deposited into your account. You can then count this as an additional income source for your second home loan application,” she says.

Tucker adds that, as the landlord, you will still be required to pay the rates and any levies on the property, and be responsible for repairs, insurance, and maintenance. It’s important, she notes, to be aware of this.

Practical advice for buying your second home  

Coetzee says that if you decide to buy a second home or property, you should take note of the following.

• Make sure that you can deal with paying both bonds if your current home is not sold or rented out by the time the transfer takes place on your new property.
• If you don’t have enough funds to put down a deposit on the new home, you may need to consider bridging finance.
• Be sure to speak to your bond originator about pre-approval on a second bond before selling your current home. This will allow you to make an informed decision.
• Include a clause in your offer to purchase that says that a condition of the offer is the sale of your current home.
• Bear in mind that acquiring a second property is usually more suitable in a seller’s market. This is when supply is low and buyers have to compete to purchase a property.

As regards selling your current home first, Coetzee notes the following.

• This is generally considered the safer option, as you will free up equity for a deposit on your next home. Your debt-to-income ratio will improve, and this will increase the chance of pre-approval on your next bond.
• You may find yourself at a loose end if your home sells before you are able to move to a new property. Set aside some cash for a short-term rental during this gap period.
• Work with your real estate agent and agree on a realistic price for your home. Be mindful of market conditions.
• Price your property appropriately, but assume that your home will sell for less than the listing price. Be sure to factor this into your financial calculations.

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