Buying a second home requires specific regulations and laws you must follow throughout the process. We are talking about financing regulations, tax rules, the rental of secondary housing, and how to obtain a specific loan for obtaining a secondary residence.

The place you currently reside and own, specifically located at your address, which is a part of the National Registry, is a primary residence. People can have only one primary residence. On the other hand, a secondary residence is a home you use for other purposes. 

Therefore, you can rent out a home or the ones you own for partial living for specific periods. Therefore, you can have secondary households or residences in apartments, studios, or houses. The main rule is that a cottage is not a form of secondary dwelling, which is vital to remember.

Loan Requirement for Secondary Dwelling

Suppose you wish to obtain a loan to buy a secondary residence. In that case, we recommend you learn the requirements you must meet throughout the process. We are talking about requirements for an upper limit for the total debt, equity, minimum rate for installment, and ability to repay everything on time. 

1. Equity

The first and most important factor regarding a secondary loan you wish to get is having enough equity throughout the process. You can offer equity in the form of the value of the primary residence’s accumulated capital, which is a standard solution for most people.

Regarding primary and secondary residences, the general rule is to provide at least fifteen percent of equity. For instance, back in Oslo, you needed forty percent of equity, which was abolished in 2023. 

2. Loan-to-Value Ratio

It would be best if you remembered that the LTV ratio measures how much you can have on your property, which is calculated based on the overall value of your household. Therefore, if you have fifteen percent of your equity, the LTV ratio is eighty-five percent, meaning it functions in the opposite direction from equity. 

The more you pay down on the initial or secondary mortgage payments, the lower the LTV. You should know that the LTV ratio can easily affect the terms offered by a lending institution or loan operator, especially if you wish to obtain financing for a secondary residence.

It is vital to remember that you will get the best interest rates with the lowest loan-to-value ratio. As a result, you should pay as much equity as possible when applying for a loan, ultimately reducing the overall amount you must pay and the interest rate you should handle throughout the process. 

The LTV ratio is a representation of the proportion you have borrowed. It means the requirement is that you must pay at least fifteen percent in equity, which makes the LTV eighty-five percent. The lower the LTV you have, the lower the interest rate you will get for a secondary mortgage, which is vital to remember.

Remember that applying for a secondary residence can come with collateral you can put on the one you currently own and live in, meaning the primary one. Generally, the primary residence can account for a 100 percent LTV ratio.

3. Debt

The moment you apply for a loan, the debt will be an essential aspect a lender will assess before granting you the amount you wanted in the first place. The limit on how much money you can owe is five times higher than your gross annual income. 

Therefore, if you have half a million NOK in annual income, you can take up to NOK 2.5 million, which is an important consideration to remember. However, they will consider your current debt when calculating the amount you can take, meaning bills you must pay, mortgages for your primary residence, and credit card payments, among other things.

4. Ability to Pay

If you wish to get a loan for secondary residence or lån til sekundærbolig, you should have a perfect financial situation that will help you withstand any interest rate and monthly installment you must handle. We are talking about specific factors that will entail your finances, including: 

• Credit Rating – As soon as you apply for a loan, no matter which one, the bank must assess your current credit rating and score, which clearly indicates your ability to pay. A good credit score indicate that you can quickly repay the debt, meaning the bank is more likely to grant you a loan with lower interest rates and better terms altogether. 
• Interest Rate – The bank will determine whether you are a risky lender by considering various factors, which is vital to remember. For instance, they will consider whether you can handle monthly installments by increasing the amount you wish to take by three percent. The assessment will determine whether you can afford fixed expenses such as lodging and food, meaning they will tolerate interest up to seven percent. 
• Monthly Installments – Suppose the loan is higher than sixty percent of the overall value of your household. In that case, you must pay 2.5% of your loan installment. Everything depends on whether you take an annuity or serial loans. If the loan is lower than sixty percent, you can get interest-only periods regulated by relevant bodies.

Rental of Secondary Housing You Purchased

If you have purchased a secondary home to rent out, you should understand a few things before making up your mind. 

• Location – The first and most important aspect of whether you can rent the secondary housing you purchased depends on its location. The location will significantly affect whether people will be interested in the process and how much money you can charge. The main idea is to research various areas to find homes close to public transport, schools, and kindergartens. 
• Expenses – In some situations, you must renovate your household, which may require some money, meaning you will not receive rental income throughout that period. Besides, the loan stands and goes, meaning the apartment or household must be serviced with installments, fees, and interest rates. Remember that you will get paid stamp duty. 
• Maintenance Costs – Finally, you must consider maintenance because renting a specific apartment, condominium, or household is essential. Since you will be a homeowner, you are responsible for maintenance and repairs unless you specify otherwise in the contract. Before renting out your secondary home, you should think about various expenses throughout the process.

The main idea is to prepare yourself for everything throughout the process, which will help you select the secondary housing that will offer you peace of mind. The main idea is to learn how to start. It is as simple as that.