Advice For Second-Time Home Buyers: What To Know

As a second-time home buyer, buying a home may seem like a cinch because you've done it before. 

However, some unique factors may affect second-time home buyers, unlike when they first purchased a home. You may also wonder about second-time home buyer requirements and programs.

Before diving into your second go-around with homeownership, we'll cover what you need to know.

Buying a home for the second time is different from purchasing a home for the first time for a few reasons. Let’s take an in-depth look at how the second time may look totally different from the first time around.

You May Be Buying And Selling At The Same Time

Simultaneously selling and buying a home means you may be on the hook for mortgage payments for both houses and managing the care of both properties. In the meantime, you might close on the first house but have nowhere to live before you find a second property.

If you can’t afford to buy a home without selling your original property first, you may have trouble wrangling money for the down payment.

A home equity loan (explained further down in this article) or a bridge loan may help homeowners do just that – bridge the gap until they sell their home. You can repay this type of personal loan when you close on your old home. Note that Rocket Mortgage^® does not currently offer HELOCs or bridge loans.

Housing Prices May Have Changed

Over the past 12 months, housing prices have gone up 18.6%, according to the Case-Shiller U.S. National Home Price Index. In many areas of the country, the median price of a single-family home more than doubled between 2011 and 2021, from $166,200 in 2011 to $353,600 in 2021.

Over the past 5 years, housing prices have shifted remarkably. According to the St. Louis Fed, the average sales price of houses sold in the U.S. was $374,800 at the end of 2017 to $535,800 at the end of 2022.

Therefore, you may be looking at significantly higher housing prices compared to the last time you purchased a home.

The Real Estate Market May Have Changed

The real estate market may have changed since you last went through the process. For example, over the past few years, low inventory has plagued home buyers in many areas of the country, meaning that many homes get taken off the market quickly. If you’re a newbie to this market, you may realize you need to prioritize the things you want in a home – and let the rest go, especially if you know you can live without certain features. In addition, getting preapproved for a mortgage is a must in this market – this means a lender tells you approximately how much they might lend you to purchase a home.

Over the past 5 years, the real estate market has seen interest rates jump. For example, the average interest rate for a 15-year fixed-rate mortgage jumped from 2.77% in February 2022 to 5.14% for a 15-year mortgage in February 2023. A 30-year fixed-rate mortgage, on the other hand, increased from 3.55% in February 2022 to 6.09% in February 2023.

Online Home Buying Has Grown In Popularity

Online home buying has propelled forward in recent years. A few new ways of purchasing homes have appeared, which may change how you buy a home now and in the future. It may also increase the competition you may have faced prior to purchasing a home before. For example, third-party buyers like Orchard and Knock charge additional service fees but handle inspections and home showings. Virtual agents like Redfin have also popped onto the scene, which aims to reduce the costs of using a traditional real estate agent.

You may also undergo virtual documents for buying and selling, such as electronic signature apps and online notary services to make closing a breeze.

You can even get preapproval entirely online. You can get a Prequalified Approval, in which Rocket Mortgage quickly verifies your credit, debt and estimates your income and assets. You can also get Verified Approval, where they pull your credit, W-2s, tax returns, bank statements and pay stubs. Verified Approval offers a stronger approval because it's a more accurate estimate of how much home you can afford.

Second-time home buyers must meet some of the same qualifications that first-time home buyers must meet.

• Credit score: As you likely already know, your credit score matters when purchasing a home. But as a refresher, your credit score is a three-digit number that ranges from 300 – 850 and which determines how well you've handled debt in the past. The higher your credit score, the more likely you will receive a lower interest rate on your mortgage, saving you money over the years you pay on your loan. Lenders typically look for a credit score of 620 or higher for a conventional loan, which is a loan that the government doesn't insure or back.
• Debt-to-income ratio: A debt-to-income (DTI) ratio compares your gross monthly income against the amount of debt you have. In general, you must also have a DTI ratio around 43% to qualify for a loan, but this also depends on the type of loan you choose. For example, if you prefer to get a VA or FHA loan (a loan backed by the Veterans Administration or the Federal Housing Administration, respectively), you may qualify with a lower DTI.
• Down payment: Do you remember saving money for a down payment from the first time you purchased a home? A down payment is the amount you pay upfront for a home purchase. A second time home buyer down payment is "measured" as a percentage of the purchase price, just like your first mortgage. Your down payment directly impacts your interest rate – a larger payment means a lender will consider you a less risky borrower and you may receive a lower interest rate.
• Income requirements: Your lender needs to know that you can sustain your mortgage payments over time, and they do this by ensuring you have enough income and assets to prove that you can repay your loan. For example, your lender will look at your W-2s, pay stubs, bank account statements and income tax returns to verify that you have your finances in order.

What else do you need to know about purchasing a home for the second time? We'll take a look in the next sections. 

1. Explore Second-Time Home Buyer Programs

Many may think assistance is only available for first-time home buyers. However, assistance programs and grants are also available for second-time home buyers. Look at the United States Department of Housing and Urban Development (HUD) local home buying programs guide to learn about the types of assistance available to you. You can often sort by town or county to find assistance programs available to you.

2. Know Your Loan Options

The type of mortgage used to buy your first home may not necessarily be your best option as a second-time home buyer. Therefore, you may want to look into a different loan option, such as an FHA loan, conventional loan or VA loan:

• FHA loans: FHA loans, backed by the Federal Housing Administration, allow you to apply for a loan (even for a second purchase) with a lower credit score, lower down payment and financial issues in your history.
• Conventional loans: Conventional loans are not backed by a federal entity, unlike FHA and VA loans. Conventional loans require at least a 3% down payment, though you'll have to put down at least 20% if you want to avoid paying private mortgage insurance (PMI), a type of insurance that helps protect your lender against default (AKA if you may stop paying on your loan). You'll typically need at least a 620 credit score to qualify for a conventional loan as well as a DTI of 43% or below.
• VA loans: VA loans are a government loan backed by the Veterans Administration for eligible veterans, service members and surviving spouses. You can qualify with a lower credit score and zero down payment.

3. Find A Lender You Trust

You may also want to consider whether you want to switch lenders – there's no rule that says you have to keep the same lender! You may want to consider a different lender based on how much it will cost you to get a loan with a particular lender. For example, what are the fees and payments, mortgage terms, types of loans and mortgage points (which allow you to "buy" a lower interest rate)?

Check on the interest rate and APR as well as mortgage rate locks, which allow you to "lock" your mortgage interest rate for a particular amount of time prior to receiving your loan. You may also want to consider the type of mortgage you offer, down payment and closing costs. Also, find out if you will owe a prepayment penalty if you pay off your loan early.

Learn more about how to choose a lender, even for the second time.  Finally, think critically about your experience with your lender. From a customer service standpoint, have they answered your questions? Have you gotten just about everything from them that you expected?

4. Consider Using Your Home Equity Toward A Down Payment

You may want to consider your current home equity and whether you should use it as payment for your new home. Tapping into your home equity remains a viable option for second-time home buyers.

Put simply, your home equity is the amount of home that you own against the amount that you owe. You may want to opt for a cash-out refinance, home equity loan, home equity line of credit (HELOC) or reverse mortgage – all tap into the equity you have in your home.

5. Look For Houses Online

Searching online can be a good place to start looking for a new home. However, it's still a good idea to work with a real estate agent when you’re ready to see properties in person. The knowledge of the market and experience a real estate agent can bring to the table is often irreplaceable. In addition, a real estate agent may also help you get the best deal possible, both when you sell your current home and purchase a new home.

6. Decide What You Want From Your New Home

Finally, decide what you want in your new home. As a second-time home buyer, you're fully aware of what you like and what you don't like about your current home. You may or may not make the same choices the second time around compared to the first time around. Make a list of "must-haves" and "can-live-withouts" when you put together the requirements for your new home. The answers to these questions and help from a trusted real estate agent and lender will help you form the basis for putting all the pieces of the puzzle together.

There's a lot to consider when you're purchasing a home for the second time. You've been through the home loan process before. As a seasoned homeowner, you're in a great position to consider what you want for your new home. You can navigate your second home buying experience with the knowledge of a veteran. What would you change the second time around? Sometimes, experience is a great teacher.

Ready to finance a new home? Get started online with Rocket Mortgage.