What To Know If You’re A Second-Time Home Buyer
You hear a lot of advice for first-time home buyers, but what happens when you’re a second-time home buyer? The process can be just as challenging, if not more, and it’s important to be prepared. Here’s everything you must know about buying a home for the second time.
What Should You Know When Buying A Home For The Second Time?
Buying a house for the second time looks a little different compared to when you were a first-time buyer. You have other considerations and obstacles you didn’t face as a first-time buyer. That doesn’t mean there aren’t programs to help, but you’ll likely look at the process differently this time.
1. The Housing Market May Be Different
Housing markets change often. Depending on when you bought your first home, it might look different this time around. The real estate market goes through cycles, sometimes putting buyers in the driver’s seat and other times sellers.
In a buyer’s market, buyers have the upper hand because there are more homes for sale than buyers. Therefore, many sellers will be more flexible with the offers they accept. However, in a seller's market, the sellers have the upper hand and can be pickier with the offers they accept, and homes sell much faster.
Compare the current market to the real estate market when you bought your first home to determine what you must do differently.
2. Sourcing A Down Payment Might Be Harder – Or Easier
Remember that certain loan programs, such as conventional loans, may require subsequent home buyers to put down at least 5%, whereas first-time buyers can put down 3%. This is a difference of $2,000 for every $100,000 you borrow and can be significant when money is tight.
The second time you buy a house, you might find it more challenging to come up with a down payment because sources, such as first-time home buyer grants and opportunities to tap into your IRA, aren’t an option this time.
However, if you plan on selling your current home, you’ll likely have money from the sale to use as a down payment. Once you pay off the remaining balance of your mortgage, the leftover money, or you home equity can be used – with any savings you have – for the down payment.
3. The Mortgage Qualification Process Could Be Different
The mortgage qualification process may have changed depending on when you bought your first home. For example, interest rates may be higher or lower, loan programs may require different credit scores or debt-to-income ratios than when you bought your first home.
Also, since you’ve owned a home, you may be in a different financial situation than before. You may have more or less debt, a higher income or a stronger credit score. The new circumstances could make qualifying for second-time home buyer programs easier or more complicated. If your situation is better than before, you may even qualify for more money or a mortgage with better terms.
Tips For Second-Time Home Buyers
Buying a home for the second time can be a little tricky, but here are some tips to make it easier.
1. Research Second-Time Home Buyer Programs
Most people are aware of first-time home buyer programs and grants but don’t realize there are opportunities for second-time buyers, too. Research available programs in your area and check the HUD website for more possibilities.
In addition, you might qualify as a first-time home buyer if any of the following are true:
- You haven’t owned a home for 3+ years
- You only owned a home with an ex-spouse and are now divorced or single
- Your previous home was a mobile home and not attached to a permanent foundation
2. Look For Second-Time Home Buyer Loans
Fortunately, most types of home loans you considered as a first-time home buyer are available to second-time home buyers too.
Consider all of your options, including:
- FHA: A borrower needs at least 3.5% down, a 580+ credit score, a manageable debt-to-income ratio, and proof they’ll own the property as their primary residence for FHA loans.
- Conventional loans: Second-time home buyers need 5% down, good credit and a manageable credit score. You don’t have to prove it’s your primary residence for conventional loans.
- VA loans: Veterans, active duty and eligible spouses can use their VA loan benefit repeatedly if they’ve sold their previous home, paid off the mortgage in full and reinstated their VA loan benefit. VA loans don’t require a down payment and have flexible guidelines.
3. Sell And Buy
The easiest thing for a second-time home buyer is to sell your primary residence and then buy a new home. This, of course, is in a perfect world. You would have the proceeds earned to cover your down payment and closing costs, which might make it easier to qualify for a new mortgage.
To make the deal even less stressful, consider these tips:
- Add a contingency to your sales contract: This ensures you only have to purchase the new house if your current house sells. This can make getting a seller to accept your offer harder, but it protects your finances.
- Push out your closing date: If the seller is willing to give you extra time to close, give yourself a cushion and ask for a later closing date. This allows you more time to sell your home, so you have the funds to close.
If you don’t think you’ll be able to sell your home in time, you might consider keeping it and renting it to tenants. While this won’t free up your equity, you can consider applying for a home equity loan to use the funds for a down payment on the new home. Keep in mind, this results in multiple loans and possibly multiple closing costs. It’s best to speak to a financial advisor to see if this is a good option for your situation.
4. Use A Real Estate Agent
When buying a home for the second time, it is just as important to use a real estate agent. You can use the same agent to sell your current home and help you find a new home. Real estate agents often have more marketing tactics to help you sell your home faster. They also have access to MLS listings when they first appear.
Real estate agents often have a network of buyers interested in homes like yours, and they know where to help you look for homes for sale that fit your criteria. In short, they make the entire process easier.
5. Make A Strong Offer
When you find the home you want, a strong offer is key. This doesn’t always mean having the highest offer. It could mean having pre-approval for a mortgage before making the offer. The pre-approval letter makes your offer “strong” because it tells sellers you are a qualified buyer and not just wasting their time.
Also, consider limiting your contingencies, if possible. The more contingencies you put on a contract, the less likely a seller is to accept your offer. Of course, it depends on the type of market it is. If it’s a buyer’s market, you have more leeway, but in a seller’s market, you’ll have a more difficult time if you have contingencies. Even in a competitive market, it is highly recommended to have your home inspected and often required to have it appraised.
The Bottom Line
Being a second-time home buyer might look different compared to the first time, but many resources can help you. A real estate agent is your strongest supporter in the situation, helping you buy and sell a home at the same time. Your mortgage lender is important, too, as they will help you get the necessary financing. If you’re ready to buy a second home, get started on your mortgage application today.