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Second Home Market is HOT!

If you are in the market for a second home, you know -- that beach or mountain house you always wanted -- 2009 is shaping up to be a very good year for you to make your move.

Although some homeowners are finding it difficult to even keep up with their monthly payments, a significant number of consumers are looking at expanding their real estate holdings by purchasing another home.

Home Prices Have Declined

What is fueling the demand for second homes? Answer: the recent decline in home values has suddenly made buying a home at the shore much more affordable.

In the April 2008 issue of Money magazine, Your Money & Your Life columnist Jean Chatzy shared her desire to buy a home on Long Beach Island, New Jersey. This popular summer beach destination has seen home prices increase by as much as 25% annually until last year when the market reversed course, sending prices down by 13%.

Know Your Housing Market

Of course, the drop in prices in one vacation market doesn't translate into an across-the-board decrease everywhere else. If you are searching for a bargain, then you'll need to do your homework before investing:

• Obtain real estate comps (comparables) for homes in your desired market. A knowledgeable real estate agent can get this information to you and provide valuable information about local market trends.

• Read up on the area that interests you. Let's say that you want to buy a home in Kure Beach, NC. Google the town and find articles discussing the town's future, taxes, building rights, etc. Visit the town's website for additional town news.

• Visit again and again. You may like a certain community in the summer, but not in the off-season. If you plan on spending time at your second home in the winter months, will there be enough for you to do to avoid boredom?

• Talk with a mortgage lender. You may be in terrific shape financially, more than able to meet your current obligations, with plenty of cash left over. Visit a mortgage broker now to see just how much home you can afford -- financing rates for second homes have dropped in recent months.

Shop Around For Your Second Home

Finally, if you have decided that a second home is right for you, then shop around. With home values down in many areas, you could shave tens of thousands of dollars off of the asking price for some homes that an owner all to willing to quit. Use your home equity from your first home to put down the required funds to secure a second mortgage.

Understanding Your Debt Ratios

If you are planning to refinance your home, get your first mortgage, or apply for any other type of consumer credit, your housing and debt-income ratios will be tightly scrutinized by lenders. In brief, these ratios will determine if you can afford to repay your loan.

The housing ratio is calculated by dividing monthly housing expenses by your gross monthly income. As a basic rule, the housing ratio should not exceed 28%. These expenses include: mortgage payment, home insurance, association fees, private mortgage insurance, and any other charges you are required to pay back on a monthly basis. Your income can include the following: wages from job, interest income, alimony, social security or other government pay out, and a variety of other income producing sources.

The debt-to-income ratio is calculated by dividing your fixed monthly expenses by your gross monthly income. As a basic rule, the debt ratio should not exceed 36%. Your fixed monthly expenses include: monthly installment loans, housing expenses, monthly revolving loan payments, alimony/child support, legal obligations, and more.

Before applying for a mortgage, experts strongly encourage you to obtain copies of your credit reports to make sure that they are free of erroneous or outdated information. These reports weigh heavily in determining creditworthiness and validating your lending ratios.

Both ratios are used to determine what you can borrow after your down payment amount has been taken into consideration. Use this loan-to-value (LTV) calculator to determine what your down payment amount should be.

Financing Guides are a Smart Idea

Before you take out a loan, apply for credit or consider any other borrowing mechanism, how thorough are you in researching all of your options? With the internet, it is quite easy to make an informed choice -- there is so much good stuff online -- but, it is just as easy to make a snap decision. Indeed, in these days where lax lending has led to an increase in loan defaults, consumers should exercise plenty of caution before agreeing to any loan.

Our companion site, SayLending, has all of the material you need to make an informed decision before taking on debt. Whether borrowing money for a new home; refinancing your current mortgage; seeking to tap your home's equity; applying for a credit card; looking for a loan for school, vacation, new car, etc.; we've developed specific guides for various life events.

Specifically we invite you to peruse the following:

• Home Mortgage Guide
• Home Refinancing Guide
• Debt Relief Guide
• Student Financing Guide
• Auto Lending Guide
• What's New In Credit Cards
• Fast Cash Guide

Each guide is designed to help you decide which loans are best for you and how to negotiate the best deal. Lenders are eager to have you borrow money, particularly as credit has tightened and loan applications are down. However, don't let their eagerness force you to take a loan that doesn't meet your needs -- you're in control and in a position to work out a deal that is best for you.