Buying your second home

By Ryan Connor, Home Loan Consultant at Lendi
Published on 31 August 2018

What is a second home loan?

If you’re buying a second home, you’re going through the home loan process for the second time. Applying for a second home loan can be a little different from the first time around because you may want to use the equity in your current property to fund the deposit for your new property, or you might need to sell your existing home before buying a new one.

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63% of young Aussies buy their first home with zero help from parents.

63% of young Aussies buy their first home with zero help from parents.

How much equity can you access?

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Why would need I a second home loan?

There are plenty of reasons to buy a second property, some of which include:

  • Selling your home and upsizing or downsizing a home
  • Buying an investment property or holiday home
  • Refinancing to a more competitive rate or access better features
  • Read our guide to refinancing your home loan here.

How much equity can I access to buy a second home?

If you already own a property, you can typically access up to 80% of the property’s value in equity. How much equity you can access will vary from lender to lender and depends on how much you have already repaid.
Before you can access your equity, lenders will typically request a property valuation to see if your property has increased or decreased in value. Use our equity calculator to find out how much equity you could access.

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What are the requirements for a second home loan? (i.e. documents, credit etc)

The requirements for a second loan are much the same as for any loan. However, since you’re a second home buyer, providing records of the repayment history for your current loan can make it easier for lenders to assess your situation. Having another home may mean that applying for a second home loan will be easier since the first property is counted as an asset.

To qualify for a second home loan you’ll typically need:

  • A good credit rating
  • A deposit obtained through savings, or the equity on your original property
  • Evidence of a good income and a solid employment history
  • Identification such as a driver licence, passport or birth certificate
  • Recent PAYG summary or group certificate
  • A recent rates notice
  • Recent loan statements for your current loan
  • Evidence you have made your loan payments on time and not defaulted
  • Declare any other assets or debt

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Do I sell my current home first, before buying a new home?

If you’re selling your current home and planning on using the funds of the sale to buy another home, then deciding what to do first can be tricky. One way to avoid stress is by getting a bridging loan.

What is a bridging loan, and how does it work?

A bridging loan is a loan specifically for those who are buying a second property but have not yet sold their current home. It’s designed to help pay for what is essentially two home loans. When buying and selling at the same time, be sure to consider all your options and the risks involved.

  • For bridging loans, the repayments are typically interest only until the first property has been sold. However this will depend on your lender.
  • Some lenders don’t require any payments on the bridging loan until your original property has been sold, while others will require it from the get-go.
  • There is a risk that you may overestimate the sale price of your property and your property may take longer than expected to sell.

If you think you might require a bridging loan consider getting independent financial advice.
Related: How it works: Buying and selling at the same time

Interested in exploring bridging loans? Choose a time to chat to a Home Loan Specialist for free, expert advice.

What are the costs of getting a home loan?

If you intend to refinance your existing loan while also getting a new loan you may need to consider some extra costs and fees.
You may need to pay an application or establishment fee for your new loan.

What are the costs of getting a home loan?

If you intend to refinance your existing loan while also getting a new loan you may need to consider some extra costs and fees.

  • You may need to pay an application or establishment fee for your new loan.

  • Every new purchase of residential property in Australia requires payment of stamp duty in each state and territory.

  • Dependant on your lender’s terms and conditions you may be required to pay a valuation fee and your lender’s legal fees to complete your new purchase.

  • If you’re refinancing while in a fixed rate period, you may be charged an exit fee by your previous lender.

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How much can I borrow?

The loan amount you will be able to borrow will depend on a number of factors including your current financial situation, how much you earn, how much you’ve saved, as well as how much you owe. It will also depend on market conditions, restrictions and lending criteria. You can find out how much you can borrow by using our borrowing power calculator.
If you are planning on using the equity in your current home, you will typically be allowed to access up to 80% LVR. If you want to borrow in excess of 80% LVR your lender may require you to pay Lenders Mortgage Insurance.

What are the risks of accessing equity?

Unfortunately, there are plenty of risks involved in taking out a second home loan.

  • You are incurring more debt to be repaid
  • Your repayments may be larger
  • It may take longer to repay your loan
  • If your new loan means your LVR is higher than 80%, you may be required to pay LMI.

What are the benefits of accessing equity?

Borrowers taking out a second home loan are typically in a stronger position because they have built up equity from their initial property purchase.

  • If you use the equity in an existing property to secure your new loan, you won’t need to save up for a deposit. This can positively impact your cash flow.
  • If you’re already making regular repayments on your existing loan lenders can view this favourably.
  • If you’ve built equity from your existing property you should have a lower LVR and be in a stronger borrowing position.
    The process is a bit simpler than if you’re a first home buyer.

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How can I buy a second property with no deposit?

Some steps to follow that make getting your second home loan faster:

  • You can build up extra equity in your current property by always meeting your repayments and even making extra repayments when possible.
  • You could also boost the value of your property by making some home improvements.
  • Get independent advice and discuss your options with your Home Loan Specialist, and make sure everything is in line before you make any solid agreements or decisions.
  • Have an estimated value of the property you’re after, as your lender will most likely want to know about it.
  • Try to make sure your credit file is clean and consider paying off any unsecured debts such as credit cards before applying for a new loan.

Which loan should I choose?

The lender and loan you choose for your next home loan will depend on your specific situation. Don’t assume that because you already have a loan with one lender that you’ll get a better deal as a return customer. In today’s market it pays to shop around. There are a few things to look out for that may help you reduce the amount of interest you pay.

  • If you can afford it, consider making principal and interest repayments. Interest only payments mean you’re only paying the interest and not actually paying off your loan. You will also pay more interest in total over the life of your loan.
  • If you want the stability of a fixed rate home loan consider splitting your loan with a portion at a fixed rate and the remaining at a variable rate. That why if variable rates do go up the financial sting won’t be too painful.
  • If you have the capacity to make extra repayments ask your lender about your offset account or redraw facility options.
    If you’re on the market for an investment property, be aware that investment property interest rates are currently higher than owner occupied rates.
  • If you’re planning on adding another family member to your home consider the flexibility of your loan and let your Home Loan Specialist know how long you intend to live in your property. That way they can find the best loan for your specific needs.

Buying another home and obtaining a second home loan can be a significant financial commitment. You can discuss your options and make sure you’ve got the most competitive rate for your needs with a Home Loan Specialist.

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