How to qualify for a second home loan

Article summary

• Even though you already own a property, you’ll have to go through the same process applying for a second home loan as you did for the first, including a credit check.
• If you plan to rent out the property, bear in mind that most banks do not take potential rental income into account when assessing your home loan application, but you can use that income to pay off the bond.
• Even if your financial situation has improved since you last took out a bond, you should still get prequalified, as the bank’s lending criteria may have changed.

There’s a wealth of information out there for first-time home buyers. After all, they’re about to make the biggest financial commitment of their lives, and they probably know very little about the process. But what about buyers needing a second home loan?

Qualifying for a second home loan has its own unique set of challenges. ooba home loans, South Africa’s largest home loan comparison service, brings you this guide to buying a second property.

Applying for a second home loan: The process

Even though you already own a property, you will still have to go through the same process as you would if you were a first time home-buyer, meaning that the bank will need to evaluate your credit record, as it did the first time.

Reasons for buying a second property

Many second-time home buyers plan to use the second home as a holiday home, or as a buy-to-let property. With rental incomes steadily increasing over recent years, buy-to-let can be a good way to bring in a regular income. “If you can find the right property and the right bond, it is possible to make a rental yield of as much as 5 to 10%, depending on where the property is located,” says Rhys Dyer, CEO of ooba home loans.

Bear in mind that most banks do not take potential rental income on the property into account when assessing your bond application. However, if they do approve the home loan, rental income you generate on the property will, of course, help you pay it off.

So take the following into account before applying for a second home loan, if you plan to use the property to generate rental income:

• The average rent of other properties in the area, which will help you determine your likely rental income.
• The chance that the property will be occupied on a regular basis.
• The cost of hiring an agent to manage the property (usually around 10 percent of the rental income) [source]
• Additional expenses such as maintenance, taxes, municipal rates, insurance, etc.

Why you should get prequalified before applying for a second home loan

Although you may think that getting bond approval the second time around will be plain sailing, particularly if your financial situation has improved, don’t be too sure. The bank’s lending criteria may have changed in the period of time since you purchased your first home.

Furthermore, even if you’ve kept up well with monthly repayments on your current home loan, it still pays to shop around for the best deal and compare interest rates offered by the various banks.

Bonds cannot be transferred from one property to another, so each home loan application is considered in isolation. ooba home loans can apply to multiple banks on your behalf, giving you the best chance of favourable interest rates on the second home loan.

ooba home loans also offer a range of tools that can make the home-buying process a lot easier. To calculate your monthly bond repayments at different interest rates, use ooba’s bond repayment calculator. Then you can use the ooba Bond Indicator, a free, online prequalification tool, to determine your credit score and what you can realistically afford. Finally, when you’re ready, you can apply for a home loan.