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Can I get a second mortgage on a second home? (and how to do it)

“Always pick your yard based on your Summer lifetstyle.”

~ KARL

October 4, 2018 - Karl Yeh

If you are planning to buy another home, what are the mortgage implications? Can you transfer a mortgage? Can you get two mortgages and how would qualifying work? In this episode, we discuss how mortgages work if you are buying another home, whether to move to or as an investment property. We explore the mortgage implications of buying and selling a home at the same time and how mortgage portability works. Finally, we answer if you need to qualify for a mortgage/take the stress test for a second home and if it's a good idea to carry two mortgages. 

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Transcription:

Karl Yeh:

Hi everyone, welcome to another Homebuyer's School video, a channel where you get the latest strategies, tactics and tips from home buying experts. And remember, if this is your first time on this channel and you want to get the latest strategies from the experts, hit the subscription button blow, hit the little notification bell, so you don't miss anything.

Today I'm joined by Mujtaba Syed, Manager Mobile Mortgage Specialist with TD Canada Trust.

The question we're going to answer today is:

Can you buy a house when you own one already?

Mujtaba Syed:                  

Yeah, absolutely. It just depends on your scenario, what you're looking at doing.

If you're trying to buy a house and you want to sell your home, yes, you could definitely do that.

You could go to your lender and you could speak to them and say, "Listen, I actually have listed my property, or it's been listed, I have some pending offers. This house is not going to be sold. I do want to [00:01:00] purchase a new one."

A lender can actually factor that into your qualifications.

They could take a look and say, "If we can get some kind of confirmation or proof that you have sold your house, or there's a pending offer on it, or you will sell your house prior to moving into your new house, we can actually use that to qualify you."

That can be just one scenario of it.

Buying another house and renting out your first home

Mujtaba Syed:                  

Another scenario is:

If you decide that you've lived in this house and now you want to turn that into an investment property, or you want to turn it into a rental property, which a lot of people are doing these days, can you still qualify for a mortgage? Absolutely, you can.

[00:01:30] You can tell the lender and say, "Listen, I am actually planning on renting this mortgage out, I actually have a future lease in place, I have someone willing to rent this, and I actually want to buy a new house.

A lender at that time can look at that scenario and say, "Listen, can we use their rents to offset their current obligation, their current mortgage? Would that be able to help you qualify for your mortgage?"

It definitely can.

Mujtaba Syed:                  

So there's definitely scenarios to take a look at.

You don't have to sell your home, and then buy a new home after. You can do at the same time. [00:02:00]

Once again, you want to talk to the professionals and the specialists you are dealing with at that time, which would be your bank, your lender, your real estate agent.

Everyone should be able to be on the same page, and they can give you the right advice at that time, but definitely tons of options available, you don't have to wait, or you can have more than one house at a time.

Mortgage portability

Karl Yeh:                             

What happens to your current mortgage from the current house? I don't think you can transfer that mortgage. Do you actually have to qualify for the new house?

Mujtaba Syed:                  

Yeah, absolutely. [00:02:30]

When it comes down to having your current house right now, all things have portability built into their mortgages.

What we call portable, what that just means is that now we can actually take your mortgage, and port it from one property to the other once you sell that product.

There's a benefit to portability. You can definitely look at doing that if you have a great rate.

If you have going a rate at that time when your rates were very low, and you've got some great terms on that rate and you want to take that over, you can actually port that  mortgage, once you sell your home, onto your new home, so you can keep that rate.

[00:03:00]

Mujtaba Syed:                  

Portability, there's also a lot of benefits to portability as well, because like I said, if you are in a fixed rate and you try to sell your home, and you want to break that term, there are something called penalties.

There are called exit penalties, pale penalties, and they could be kind of large, they could be, depending on what they are at that time.

How to finance your home

So a portability option will also save you from paying all your penalties.

So if you're going to sell your house and you want to be moving into your new house, talk to your lender about portability.

Go to [00:03:30] your lender you were dealing with previously, or your banker, or your specialist, and advise to them, and say, "Listen, do I have a portability option?" Can I transfer my mortgage from one property to the other?

Then work with them to see what they advise for you to do.

Do you need to qualify for another mortgage if buying a second property?

Karl Yeh:                             

When you're planning to buy a new house, and you're planning to port your mortgage over, do you have to take that stress test, or the pre-qualification, again?

Karl Yeh:                              You do. Okay.

Mujtaba Syed:                   Absolutely.

Even if you qualify for [00:04:00] a mortgage for a first time, are a first time home buyer per se, any time you get a mortgage or you do a lending, when it comes down to mortgages or secure lending, what we call it, you have to go through a stress test.

Because we want to see qualifications. Situations could have changed, and now everyone's subjected to that.

It wouldn't be fair for someone, for a first time home buyer, to qualify on a stress test of someone who wasn't a first time home buyer, so everyone is on an even playing field.

Everyone has to.

You could be a first-time [00:04:30] home buyer or a 10th time home buyer. If you want to purchase a new home you have to through the stress test what's available for every today.

Karl Yeh:                             

How about if, let's say, you inherit a home, and you already have a mortgage. Same thing? You still have to requalify for, if you want to take that mortgage on?

Mujtaba Syed:                  

Those situations can be a little complicated. What I would do, every scenario is going to be different when it comes down to inheritance, or been given a house, or gifted [00:05:00] a house, et cetera. It's also things that you would want to talk to your specialist about, for sure.

There might be a stress test in there, there might not be, these are just not normal situations, they're not normal scenarios, so what we call out of the norm.

Sit down with the lenders, sit down your specialists, and have the discussion with them to see how your certain scenario impacts you, with the stress test or without the stress test, to see what happens.

Karl Yeh:                             

Let's say your using that second property, or your current property, and your' going to move into the second one, as a investment property [00:05:30].

Is it a good idea to actually carry two mortgages?

Mujtaba Syed:                  

Once again, it really just depends on your financial situation and your financial obligation. If you want to turn one of your properties into a rental property or investment property, you want to see how comfortable you are.

There's definitely pros and cons of having investments in real estate, like any other investment. There's imposing costs to having a rental property. You want to see if it meets with your financial obligations.

Maybe sit down with your financial planner, maybe sit down with someone who can advise you on that path to see if it makes [00:06:00] sense for you.

Mujtaba Syed:                  

There's significant risk for having a rental property, or taking on renters, that you could take on as well. That risk could be extra risk for you. If someone's damaging your property, or they haven't paid their rent on time, because that rent or that mortgage payment, is still an obligation on you.

So even if someone else doesn't pay on your behalf, you still have to pay. That is a current obligation for yourself.

Definitely have that conversation with the financial planner, with someone that you feel [00:06:30] like can actually give you the proper advice on having that, and then decide for yourself.

I feel like having options is great, and always having real estate investments is also a good option as well, but it might not be recommended for yourself.

Karl Yeh:                             

Perfect. My question for you is:

Have you owned another home and tried to apply for a mortgage? Have you been accepted or declined?

Let us know why or why investigate in the comments section below. 

Do you [00:07:00] have anything else to add?

Mujtaba Syed:                  

No, I think that's pretty much it. Definitely go in. Every scenario is going to be different, your scenario is going to be different.

Have the conversation with your lender, have the conversation with your specialist, and work with the best case scenario for yourself.

Karl Yeh:                              Perfect. Thank you very much for joining us.

And remember, if you want to watch any more of our mortgage or mortgage rate videos, check out our playlist.

Thank you very much for joining us and we'll catch you next time.

 

Your turn:

Let us know if you have additional mortgage or financing related questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from home buying experts.  

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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