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Mortgage and Financing Guide

Mortgage application form on wooden table. There is also a mobile phone, computer keyboard, coffee, Filofax organizer notepad and glasses on the table. The table is made of wood and is quite old. Copy space on left.

One of the most important things to consider when buying property is financing. In the Jersey Shore, this can get a bit trickier, as homes in the area can either be primary or secondary.

While the process for getting financing for a primary or secondary home has many similarities, there are also significant differences. Check out our guide below to give you an idea on how to finance a home purchase in the Jersey Shore.

Basic principles

All mortgages, regardless of the property type, are based on the following basic principles:

  • The loan or mortgage uses the home or property as collateral or security backup. If the borrower fails to make scheduled payments within a specified period, the lender typically has the right to foreclose on the home.
  • The borrower pays interest on top of the principal loan amount or the price of the home. The interest rate is agreed upon when finalizing the loan.

It can be a fixed rate, meaning the rate is the same throughout the entire mortgage period, or an adjustable rate, which means the rate may be adjusted throughout the term of the loan based on prevailing market interest rates.

  • The interest rate and other terms of the loan are typically influenced by the borrower’s financial trustworthiness, which is often determined through their credit score and debt-to-income ratio (DTI).

The higher the credit score and the lower the DTI, the more “trustworthy” the borrower is deemed to be. Those with lower credit scores and higher DTIs are considered riskier borrowers, and lenders offset the risk through higher interest rates and other more stringent loan terms.

Types of mortgage

There are many types of mortgage in the market today. Additionally, each lender offers various loan products with different terms, discounts, and perks. There are loans designed specifically for large amounts, often applied in the purchase of luxury properties. There are also loans geared for those with lower credit scores or are considered riskier investments.

There are, however, three basic types of loans:

  • Fixed rate mortgage – The borrower pays a fixed monthly amount throughout the loan period
  • Variable payment mortgage – The interest rate is fixed but the amount of monthly payments may vary
  • Adjustable rate mortgage – The interest rate and monthly payments vary based on prevailing market interest rates

Financing a primary home vs. a secondary home

Getting financing for a secondary home typically takes longer than it would for a primary home. The lender will look into the same factors considered in financing a primary home, but will add a few more, including:

  • Use of home – Will you use the home primarily as a vacation home or as a rental property? If you rent out the home for more than 14 days in a year, it is considered a rental property and, thus, a riskier investment. This means you might receive a higher interest rate for it.
  • Insurance needs – You may have to pay more insurance for a Jersey Shore property, given the natural conditions in the area.
  • Debt-to-income ratio and credit score – Regardless of the number of properties you own, the lender will want your DTI to be low, that is, less than 36%. If the purchase of a second home raises your DTI, the lender may consider it a risky investment. A high credit score is also often necessary to get financing for a second home. You may also need to show proof of income stability and cash reserves

Whether you’re buying a primary or secondary home in the Jersey Shore, the experienced Realtors at the Glenmary Real Estate team can help you find the right financing. Call them at 732-630-3000 or email them at info@glenmary.com today.