Second-Time Homebuyer Guide

Your first home has served you well, but now you’re ready to move on. What can you expect as a second-time homebuyer? Whether it’s been years or decades since you bought your home, you’ll find some aspects of the home buying process similar and others quite different.

With this guide, you’ll dive into the world of second-time home buying so you can feel confident taking the next step in your homeownership journey.

Defining a Second-Time Homebuyer

So, who exactly is a second-time homebuyer? A second-time homebuyer is someone who has previously owned a home and is purchasing another one. They may be moving with the desire to upsize, downsize, relocate or enhance their lifestyle. Or they may be interested in buying an investment property or vacation home.

Benefits of Being a Second-Time Homebuyer

Second-time homebuyers enjoy several advantages, including the following:

• They may have a clearer understanding of the home buying process.
• The sale of their current home may provide a source of down payment funds on their second home.
• They may have a more established financial situation and credit history, potentially increasing their loan options.

When Are You Considered a First-Time Homebuyer Again?

It’s important to note that not all previous homeowners are considered second-time homebuyers. If you’re applying for a conventional loan, you could qualify as a first-time homebuyer if you meet the following criteria:

• You have not owned a principal residence in the last 3 years.
• You have not owned a home jointly as a married couple within the last 3 years (if you owned a home but your spouse hasn’t, you can still qualify).
• You’re a single parent who has only owned a house with a former spouse while married.
• You have only owned property prior to applying that didn’t comply with building codes.
• You have only owned property that didn’t have a permanent foundation.

First-time homebuyer status could give you access to certain programs that offer closing cost aid, down payment assistance, tax benefits and other types of support.

If you currently have a Federal Housing Administration (FHA) loan, you may be able to take out another FHA loan for a new primary residence.

The Mortgage Process

The mortgage process for a second-time homebuyer generally follows the same steps as a first-time homebuyer. As with your first mortgage, a lender will evaluate the following during the underwriting process:

• Credit score
• Liquid reserves
• Available funds for down payment
• Proof of income

However, if you haven’t applied for a mortgage within the last 15 years, you may notice some differences:

• Depending on the loan program, the credit score requirements may be more stringent.
• More documentation may be required.
• There may be more rigorous underwriting practices to evaluate a borrower's creditworthiness, financial stability and ability to repay the loan.
• Much of the application process can be conveniently conducted entirely online.

Potential for No Down Payment

While most mortgages require a down payment, you may qualify for a zero-down payment VA loan if you're a veteran, service member or military family. With a VA loan, there are:

• No down payment on home purchase loans*
• Lower closing cost limits
• Lower interest rates
• Relaxed credit requirements
• No monthly mortgage insurance premiums

Already have a VA loan for your first home? As long as your new home will be your primary residence, you may be eligible for another VA purchase loan.

Keep in mind that the less you put down, the greater your monthly mortgage payment will be, and you’ll be paying more in interest over the long term.

Selling Your Current Home and Buying a New One

While it is common to sell your current home and buy your new one simultaneously, you may choose to do one transaction before the other.

Selling Before Buying Pros and Cons

Most people choose to sell before buying, which offers the following benefits:

• You can access the equity and any profits from your current home to buy your next home, without having to include a contingency clause.
  • A contingency clause in the purchase contract allows you to back out of a contract if the sale of your current home doesn’t go through within a specified timeframe.
  • Coordinating this can be tricky, however. If your home fails to sell, your new home closing may be affected.
• You won’t be responsible for paying two mortgages at once.
• You can take your time negotiating with prospective homebuyers.

There are a few drawbacks to be aware of, including:

• You’ll require temporary housing and storage.
• Interest rates could rise as you search for your new perfect place.
• You’ll need to pay for moving costs twice, once to your temporary home and storage, and again to the new home.

Buying Before Selling

If you choose to buy your new home before selling your current one, you will:

• Avoid paying for temporary housing or an expensive storage unit
• Usually have up to 60 days after closing to move in, so you can take your time furnishing and remodeling
• Be able to act fast when you find your ideal home

Some of the disadvantages of taking this route include:

• If your current home doesn’t sell quickly, you run the risk of having to carry two mortgages at the same time.
• Purchasing a new home while carrying your current loan without selling makes it extremely difficult to qualify for a mortgage. Since you are carrying two mortgages, your debt-to-income ratio can be very high.
• Other home expenses, such as property taxes, utilities, homeowners insurance and often costly homeowners association (HOA) dues, will also continue until you sell.
• You won’t be able to use your home’s sale proceeds for your purchase and may need other financing, such as a bridge loan or home equity loan.

Best Practices on How to Sell Your House

Whether you sell or buy first, you’ll need to get your current home market-ready. Here are some best practices and tips for home-selling success.

Research the housing market. The housing market plays a significant role in the home-selling process. It impacts your pricing strategy, potential time on the market, competition and negotiating power.

For example, in a buyer's market, homes tend to remain listed for longer and may sell at a lower price. This is great for you as a buyer but not as a seller. You’ll want to price your house competitively, make necessary repairs and stage your home to attract buyers. You may also need to offer buyer incentives, such as paying for some closing costs.

On the other hand, during a seller's market, strong demand for homes can create bidding-war conditions. You may attract eager buyers willing to pay a premium for your home. Plus, you may sell quickly, providing the down payment funds to purchase your new home soon.

Find a reputable and licensed real estate agent. While you may have used a real estate agent to find your first home, hiring one to sell your current house is a good idea. Selling a home involves many moving parts, and a real estate agent can guide you through the process. They are knowledgeable about market conditions, marketing, negotiating and the steps required to achieve a positive outcome.

Locate a lender. Secure an experienced lender that can help you with your mortgage once you’re ready to purchase a new home. You’ll want to find one that offers a range of loans and competitive rates, as well as a written commitment to lend you a specific amount of money, subject to certain conditions. This type of certification, such as a Pennymac BuyerReady Certification,* demonstrates that you are a serious buyer and can give you the confidence that you’ll be able to obtain the funding you need.

Deep clean, declutter and stage your home. Present your home in its best light by deep cleaning, decluttering and staging. These three steps enhance the visual appeal of your home, create a welcoming atmosphere and allow buyers to envision their belongings in the space.

Make repairs and updates. Potential buyers will be looking for a home in good condition. Make sure your exterior and landscaping are well maintained. Fix broken fixtures, give walls a fresh coat of paint and verify your plumbing, HVAC and electrical systems are all working properly. Consider getting a home inspection before putting your home on the market to identify priority projects. Your real estate agent is also an excellent resource for determining which repairs and updates you should focus on.

The Home Buying Process the Second Time Around

The second-time home buying and mortgage process is similar to that of a first-time homebuyer. You’ll need to:

• Prepare financially
• Search and find a property
• Make an offer and negotiate
• Get a home inspection
• Finalize the mortgage
• Close and move in

But while the process is basically the same, some other factors, such as those below, may have changed and will influence your next home purchase.

Financial Aspects to Consider

As you navigate the second-time buying process, take into account the following financial considerations:

Shifted market conditions. The real estate market might have changed dramatically since your first home purchase. For example, if you purchased your current home in a buyer’s market, you perhaps had a lot of options and negotiating power. If it’s a seller’s market now, you might encounter tight inventory. Listed homes will sell rapidly, and you may need to be prepared to pay more and forego contingencies to get the home you want.

Your financial situation. How has your financial status evolved over the years? Has your income increased? What expenses do you have now that you didn’t have when you bought your home? Your current financial health will play a role in what loans you will qualify for.

Mortgage underwriting changes. Over the past 15 years, mortgage qualifications have become more stringent and interest rates may have changed significantly. However, if your financial circumstances have improved, you may have increased financing opportunities.

Down Payments and Benefits

As a second-time homebuyer, you can take advantage of all that equity you have built over the years and put it toward your new home. After closing, you'll receive the proceeds from your home sale minus any outstanding mortgage balances and transaction costs. You can use those proceeds, as well as any additional savings, for a down payment.

Exploring Second-Time Homebuyer Programs

While there are many programs to help first-time homebuyers, there are some that assist individuals in purchasing their second home. Visit the U.S. Department of Housing and Urban Development (HUD) or a local government website to explore options in your area. And remember, if you meet first-time homebuyer criteria, don't rule out first-time homebuyer programs.

In terms of mortgages, second-time homebuyers have numerous options, including conventional, FHA and VA loans. A Pennymac Loan Expert can help you compare loans and work with you to find the one that best fits your needs.

Key Differences Between First and Second-Time Buying

The main differences between first-time and second-time home buying are typically related to mortgage considerations, market conditions and experience.

The Requirements and Challenges

As a second-time homebuyer, you will not be eligible for grants and other initiatives that aim to assist first-time buyers in obtaining down payment funds. This means that you will likely need some down payment. If you are selling your home, you can use the sale proceeds for your down payment.

Today’s stricter underwriting practices, including more stringent credit standards, are aimed at protecting consumers and the housing market. However, individuals with credit challenges may find it more difficult to qualify for a favorable home loan.

Experience Factors

You can leverage your prior experience as a second-time homebuyer. You’ve been through the home buying and mortgage process and may be familiar with the documentation required and the timeline involved. And while the process and market have evolved over the years, your knowledge can equip you with valuable insights and confidence throughout the journey.

Frequently Asked Questions (FAQs)

Check out these FAQs for answers to some of the most common questions that second-time homebuyers have about mortgages.

Can a Second-Time Home Buyer Get an FHA Loan?

Yes, Federal Housing Administration (FHA) loans are available to qualified homebuyers who wish to put less than 20% down on their home purchase. Income, debt and credit history requirements are more flexible than conventional mortgages.

FHA loans are also a great option for borrowers who may want to put more than 20% down. They allow for a 580 credit score, whereas conventional loan pricing gets expensive the lower the credit score is.

What Are the Common Requirements for Second-Time Buyers?

Common requirements for second-time homebuyers depend on the type of loan, but a lender will consider your credit score, income, debt and down payment when evaluating your mortgage application.

Are There Specific Programs or Grants Available for Second-Time Buyers?

Yes, Federal Housing Administration (FHA) loans and VA loans are available to second-time buyers. States and local governments may also offer programs to help second-time homebuyers. Check the U.S. Department of Housing and Urban Development website or your local government website to explore available options in your area.

Make the Move to Your Next Home With Confidence

Moving to your next home is exciting, but being prepared before diving into the home-selling and buying process is essential. Reach out to a Pennymac Loan Expert who will help guide you through the mortgage process, answer your questions and discuss a variety of competitive rates and loan options.

*As long as the sales price does not exceed the appraised home value.

**Customers pre-approved with Pennymac prior to locking any Pennymac purchase loan get $1,000 applied as a discount off total closing costs and/or principal curtailment, subject to investor guidelines. Excludes Jumbo, refinance, third-party and in-process loans. Offer subject to change or cancellation without notice.

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