Can You Apply For Another Mortgage While Refinancing Your Current Home?

The real estate marketplace is usually a confusing and hard-to-approach space. Homeowners are often left wondering what they can do in various circumstances and how they can best maximize their properties and the market for their benefit. These questions swirl around any change of status to a person's real estate standing. For instance, many people who own their own houses begin searching for new real estate to bring into their investment portfolio in an effort to become a landlord, offer a property as a vacation rental space, or engage in home-flipping practices.

According to Redfin, mortgages are used overwhelmingly in real estate transactions, so learning about how and when you can leverage this financing opportunity to help streamline the process of property ownership is crucial. The short answer to this primary question is yes, homeowners are able to refinance their current home while taking out a second mortgage on a new property. In fact, this may be beneficial or even required when approaching a lender about the purchase of a second house. In addition, refinancing changes your repayment terms, which can help square the new fiscal obligation with your existing budget and future financial projections.

Second homes and investment properties require financing, too

Homeowners can make use of refinancing for a variety of different reasons. However, one common theme in this space is the use of the primary residence to help finance the purchase of a second property to be used either as an investment or as a vacation home. In order to finance the purchase of any home, you'll need to work with your bank or another type of lender to define repayment terms. Typically, repayments are built around your ability to afford this new financial obligation, and generally, a lender will want to see that your mortgage loan repayment doesn't rise above 28% of your total monthly budget, according to Chase.

If you're purchasing a second home, you'll be taking out a mortgage loan to buy this property, and both of your mortgage repayment obligations will combine within this classification. As a result, you may be required to refinance your existing mortgage to reduce your monthly payment figure to meet this need.

The truth is that balancing your outgoing payments lies at the heart of any refinancing operation. Whether you're using this approach to alter the interest rate associated with your loan or as a means to purchase a second home, refinancing is an important tool that homeowners retain access to under virtually any circumstances relating to the property market.

Refinancing can be challenging, so a strategy is necessary

The process of refinancing your mortgage loan can be a stressful one. Owners will be on the hook for a new origination fee and other potential increases to the total expense, with Rocket Mortgage noting that this will likely take 0.5% to 1% of the loan value. You may even refinance to extract equity from your property to buy a second home. You might also consider taking out a second mortgage with the same lender to bundle your customer service needs and repayment practices together. By pairing your real estate repayments under one roof, you can work with the same lender to secure favorable terms for all of your financial needs in this arena.

However, a lot of calculation goes into any sort of refinancing effort, and it becomes even more complicated when bringing a second property into the mix. Therefore, working with your lender or any other financial professional that you trust to understand the risks and your obligations and eligibility is critical. Working with an advisor to develop a strategy both for securing the mortgage funding and repaying the loan will make this experience a positive one rather than a nightmare that continues to haunt you for many years to come. Investment properties and second mortgages aren't for everyone, but when used correctly, they can immensely benefit your financial health.