Second home loan: How does it work?
Buying a vacation home to invest or rent through a second home loan is possible. But in which cases is it allowed and how does a secondary housing loan work?
Can I hire a second home loan?
Having already contracted a first home loan for the purchase of permanent own housing, it is possible to contract a second or more, as long as the debt-to-income ratio does not exceed the limit defined by the bank.
The effort rate represents the ratio between the monthly income received by a household, versus the monthly payments with credits. The recommendation from the Bank of Portugal is that this rate should not exceed 35%. The ideal effort rate should be between 30% and 34%.
In other words, if your income can cover more than one mortgage, you can hire. However, after the first home, a second credit will be for secondary or income housing. And in this case, the credit conditions proposed by banks are different.
What are the conditions for a second home loan?
A second mortgage for buying a vacation home, for investing, or for renting out, may have worse conditions than a first mortgage.
Even if the effort rate does not exceed the maximum defined by the bank, and credit can be granted, since you already have a housing loan, the rate will be higher. Therefore, the conditions will be less favorable.
The condition that differs the most is related to the loan-to-value of credit. The maximum amount that banks lend for the property, in the case of a secondary residence, is around 80%. While for primary permanent residences, banks lend up to 90% of the value.
The amount financed by banks in a second mortgage is lower. Just like in the first mortgage, banks lend the lower value between acquisition and appraisal.
Regarding other credit conditions, such as interest rates, they do not differ from the first home loan.
Regarding the maximum financing term, it may be limited to 30 years, regardless of the ages of the holders, with a limit of 75 years for the oldest holder at the end of the contract.
The remaining conditions proposed by banking institutions may be similar. However, there may be exceptions where the conditions presented are different depending on the entities.
Taxes work similarly to buying a own and permanent home. You have to pay the Stamp Duty (IS) and the Municipal Property Transfer Tax (IMT) at the deed. However, the amount to be paid for IMT is different for secondary homes having a different table. In addition, there is the exception that in a second home you are not entitled to exemption from the Municipal Property Tax (IMI). And still having to declare the capital gains of a secondary home in the settlement of IRS.
If you want to move forward with the hiring of a second home loan, for a secondary home, you should then request a simulation from several banks. Then, analyze the conditions proposed by each bank through the European Standardised Information Sheet (ESIS) and compare them to find the most suitable for you. Credit intermediaries Savings in a Minute can help you with all the paperwork and comparison, in order to hire your second mortgage credit without complications.