 How
to finance a second home
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 Dear
Dr. Don,
Can you tell me the difference in mortgage options when buying a
second property or land for a summer/retirement home? Thanks.
-- Sheila Shangri-la
 Dear
Sheila,
Land loans are a different breed of cat than
a mortgage loan on a second home. A vintage Dr. Don column, "Land
loans," discusses financing land in greater depth.
As to your mortgage options, you really have the same
range of options that you would have with the mortgage on your primary
residence, at least when it comes to choosing between the mortgage
term, fixed versus adjustable interest rates and interest-only versus
self-amortizing loans.
The underwriting standards for a second home can be
somewhat different than what is required for the mortgage on a primary
residence. What I mean by that is the lender might require a larger
down payment or add a risk premium to the mortgage interest rate
because the home isn't your primary residence. The Bankrate feature,
How
to buy a second home, has some good tips on both buying and
financing a second home.
My advice is to take the big-picture view of what
you're trying to accomplish. If it's going to be a stretch to carry
two mortgage payments, then an interest-only loan might be useful.
If you eventually plan to sell the primary residence and retire
to the second home, then you can plan on using the proceeds to pay
down or pay off the mortgage on the second home. Build in some financial
flexibility so you don't become house rich and cash poor. Send me
a post card.
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