Author Topic: Anyone here take the risk of carrying two mortages?  (Read 11335 times)

grettman

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Anyone here take the risk of carrying two mortages?
« on: June 15, 2015, 12:32:02 PM »
I currently own a home and have a mortage.  I am looking to sell my house and buy another.  Concerned that the market will further heat up, I wanted to see if I could pre-qualify for a mortage without having to sell my current home.  This way, I could be a stronger buyer.  I know the risk is there that I won't be able to sell my home and will have to carry both mortages for a while.  Personally, this makes me a little queezy but I could swing it if I had to.  I wanted to get the thoughts and experiences of others who took this risk. Thanks!

trammatic

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Re: Anyone here take the risk of carrying two mortages?
« Reply #1 on: June 15, 2015, 12:47:58 PM »
Yup...we did that, and it worked out well for us.  Although, after running the numbers, it made more sense to rent out the current house (with a return of roughly 15% after accounting for vacancies.)

grettman

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Re: Anyone here take the risk of carrying two mortages?
« Reply #2 on: June 15, 2015, 01:17:06 PM »
Yup...we did that, and it worked out well for us.  Although, after running the numbers, it made more sense to rent out the current house (with a return of roughly 15% after accounting for vacancies.)

Did you end up having to pay both at the same time?  ( I assume not since you said it worked out for you).  When you put the contract out on the new house how far in advance did you have the settlement?  How long did it take you to sell your house?

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Re: Anyone here take the risk of carrying two mortages?
« Reply #3 on: June 15, 2015, 01:33:17 PM »
A 2nd mortgage would have been a lot more comfortable than what I actually did. When I bought an investment property I financed it and the renovations with a 401k loan, 2 personal loans, a car loan, and a 0% credit card. All those payments where hard to cashflow. The property was uninsurable so I couldn't get a mortgage on it until it was fixed up.

If you can afford the 2 payments, even if something happens to your employment, it seems like a reasonable thing to do if it helps you get a deal on your house. Hopefully you wouldn't carry both for very long though.

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Re: Anyone here take the risk of carrying two mortages?
« Reply #4 on: June 15, 2015, 02:02:09 PM »
I did this during a seller's market and it turned out okay because you can actually buy the house you really want instead of waiting to sell your current home and then hoping to find your dream home.

theoverlook

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Re: Anyone here take the risk of carrying two mortages?
« Reply #5 on: June 16, 2015, 08:36:48 AM »
I've done it twice now.  Both times I had to make payments on both houses, but I don't know how I would have bought the houses I wanted otherwise.  The first time was because I needed to finish some renovations on the old house before putting it on the market.  Bought the new house, finished the old house, put it on the market, and it sat for 6 months or so before I switched realtors and it sold right away.  So 2 mortgage payments for a year or so.  Second time, had a buyer lined up for the old house but it took a few months to finally close.  So two mortgage payments for 2-3 months.  In both cases the mortgage payments were not a major financial strain - they were low relative to our monthly take-home.  I also learned that you can write off mortgage interest on TWO houses!  That struck me as bizarre, but I of course still took the deduction.

If you can't make both mortgage payments then don't do it.  You'll probably end up making at least a few payments on the old place.

grettman

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Re: Anyone here take the risk of carrying two mortages?
« Reply #6 on: June 16, 2015, 09:35:48 AM »
Thanks for the replies.  The risk has me a bit nervous but when I do the math on potentially having to rent, that scares me even more.  Around where I live it just doesn't make sense to rent.  I suppose I should try and make offers contigent on the sale of my home but in a hot market that will not work. 

Embok

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Re: Anyone here take the risk of carrying two mortages?
« Reply #7 on: June 16, 2015, 10:38:26 AM »
Did it once to move from smaller house A to larger house B when my unmustachian mother moved in with us, bringing all of her acquired stuff from 40 years of married life, after my father died.  Had to carry 2 mortgages for about 3 months.  I found that scary.  However, doing that allowed us to move once, rather than into rental housing first, then into house B.

Now just took on a HELOC to use to fix up House B for sale.  Since household is now 2 and not 4 people (plus 4 animals) will likely sell house, pay off mortgage & HELOC, put some stuff in storage, downsize other stuff, rent for a bit, then buy a smaller house (House C).  With 2 people we can be more flexible re temporary accommodations.

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Re: Anyone here take the risk of carrying two mortages?
« Reply #8 on: June 16, 2015, 02:46:04 PM »
We did the two mortgage thing and it worked out. Make sure you can afford the payment. In our case our timing was horrible and we made 5 double mortgage payments. I would do it again however as today a contingent sale contract is not a strong one. It makes house shopping so much easier and your PSA a competitive one. Even better, but no easy feat (one poster did this) is to scrape up every bit of cash you can and pay cash. I hear in today's hot markets the cash deals are winning the day. Good luck!

neo von retorch

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Re: Anyone here take the risk of carrying two mortages?
« Reply #9 on: June 16, 2015, 03:17:20 PM »
I've been curious about this because I have a mortgage. I bought a house in 2007, rented out extra bedrooms, and last fall I moved out to an apartment and rented the third bedroom. At some point, my future wife and I want to buy another house. I was worried there would be complications, but I believe that we'll qualify for the new mortgage and be OK.

gecko10x

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Re: Anyone here take the risk of carrying two mortages?
« Reply #10 on: June 16, 2015, 03:56:46 PM »
We did this about 3 years ago: Found a house we liked, and put in an offer contingent on our place selling. Our buyer fell through, and we made the decision to modify our offer to not be contingent. Bought the new house with the down payment from a 401k loan (which should be paid off in a couple months).
The old place sat on the market for nearly a year before we gave up and rented it out. We still own it and it provides a small income, so we will continue renting it for the foreseeable future.

So, in the end, it has worked OK. I wasn't very fond of making payments on an empty house for a year though ;-)

CashFlowDiaries

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Re: Anyone here take the risk of carrying two mortages?
« Reply #11 on: June 16, 2015, 08:59:05 PM »
Is there an option of renting out your current home so that you dont have to pay both mortgages?  It would really suck to be paying 2 mortgages with no income coming in from that.

I currently have 6 mortgages,  5 of them are being payed off by tenants.   Its not really a good idea to pay for 2 mortgages without seeing cash flow.  You are speculating that you can make more money in return by holding it for appreciation gain.  That my friend is what some people would call gambling. 

My opinion, buy the 2nd house, rent out the first one.   Assuming the rent numbers and calculations work out of course.

Bearded Man

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Re: Anyone here take the risk of carrying two mortages?
« Reply #12 on: June 18, 2015, 01:28:28 PM »
Moved out of my paid off house into a mortgaged house. Value SKYROCKETED in one year alone. 900% return on money down. Cash on cash return on rental income is 60% and that's with rent $200 lower than what I could get!!

Bought another house then rented second house out. Was worried I'd have to carry the mortgage for a few months before I found a renter. Because I priced it low I had such strong responses I had 100 people beating down my door. The second couple that came to look at it rented it and they plan on being there a long time. House rented within less than 2 weeks of posting on craigslist before I even moved out.

Repeating again now...key is rent below market to find a tenant quickly. Vacancies and turnover just for a few extra bucks a month rent might end up leaving you breaking even but with more headaches than renting below market and having tenants quickly fill the place and stay for a long time. Just my opinion based on my own experience.

ETA: Also, it's a lot easier to stomach when you have a job you've been at for a while, have money to carry both mortgages and your living expenses for years, and can find high paying work very quickly in your area. Although I hate it, I would tough it out working to build up/rebuild savings to have that protection. It's largely why I still work now, I want a huge buffer so I never have to return. Real estate is a great tool with high reward, but due to the leverage there is increased risk. That risk is greatly reduced when you have piles of cash and can find high paying work quickly when you have to, even if you don't want to go to work. :-)
« Last Edit: June 18, 2015, 01:36:21 PM by Bearded Man »

ShumateWB

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Re: Anyone here take the risk of carrying two mortages?
« Reply #13 on: June 22, 2015, 10:57:38 AM »
I bought a new house first and held on to my old house carrying my old mortgage for a year. I live in Silicon Valley, so I had to buy my new house when I could, since it is almost always a seller's market here. I added to and remodeled my old house before selling it because the numbers indicated that there was a premium for move in ready houses of the right size. The delay was caused by permit issues with the renovation - the city made us jump through hoops before we could get started on construction.  It all worked out fine and I got a nice profit at the end, but this is because I am in a hot seller's market in Silicon Valley. I also had the benefit of the tailwind of a year's worth of property appreciation on my old house. I would not recommend it if you are in a "normal" real estate market.
« Last Edit: June 22, 2015, 11:03:46 AM by ShumateWB »

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Re: Anyone here take the risk of carrying two mortages?
« Reply #14 on: June 22, 2015, 12:38:12 PM »
I have 5 total... 2 inside an LLC with partners, 2 on my own (rented) and one on our current home (jointly with my wife). Generally these are all covered by rental income, but we did get stuck with a $1000+ payment on an empty home for about seven months, ending very recently. It was a real drag on our investment goals.

Make sure you can afford both payments indefinitely - funny things do happen.

Cassie

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Re: Anyone here take the risk of carrying two mortages?
« Reply #15 on: June 29, 2015, 10:48:13 AM »
We did it but I would not do it again. The payment on the 2nd house was so high because our equity was in the other house. It took every penny we had & if one of us had lost our jobs it would have been a disaster. The housing market was hot so we were confident but it quickly turned sour & took us longer to sell for less $. WE were really sweating it.

jhess002

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Re: Anyone here take the risk of carrying two mortages?
« Reply #16 on: July 06, 2015, 02:02:34 PM »
We were in a position where we secured renters for our first place, then rented an apartment for a few years before buying our second home.  This way, it was much easier to get a second mortgage loan since the first property had been rented for a few years (so the lender didn't count it against us), and we could take our time with our housing search. 
« Last Edit: July 06, 2015, 02:07:49 PM by jhess002 »

Terrestrial

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Re: Anyone here take the risk of carrying two mortages?
« Reply #17 on: July 06, 2015, 05:40:31 PM »
I have done it, worked out well.

Wanted to buy a new larger house a few years ago while prices were still pretty depressed.  Market had not recovered enough to be in a good place to sell house we lived in at the time.  Decided to go for it and buy the new place and rent out the other house for a few years.  Actually just ended up selling the original house last week after it had recovered about 50k of value the past 3 years so it was a great move and a huge weight off my shoulders!

We had enough cash flow to pay both mortgages indefinitely while looking for a renter or during yearly vacancy/turnover without using savings, so the risk was minimal.  I ended up floating 4 months of mortgage total out of the 3 years, though 2 of those were at the end while it was vacant and on the market/in escrow to be sold, and i was able to pay for those months out of accumulated cash flow profit from renting so no real out of pocket money.  The rest of the time it was covered by the tenants.

Something to keep in mind:  when I went to qualify for this at the bank, they required that I meet the underwritting thresholds for debt/income ratios including both mortgages together, not just the one i was applying for, and would not give me any credit for potential rental income because I had no rental history on the place or signed lease at the time.  This was actually pleasantly surprising to see they were that strict before lending out cash.  This may or may not be an issue depending on how high a % of income the two payments consume.  I think if you are planning to sell the first house and not rent it out then they may relax this requirement.
« Last Edit: July 06, 2015, 05:44:33 PM by Terrestrial »

CopperTex

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Re: Anyone here take the risk of carrying two mortages?
« Reply #18 on: July 06, 2015, 06:37:59 PM »
I'm in this situation now. Used a HELOC on the old house to purchase the new one. We moved, put the old house on the market in mid-April and still no offers. It is very stressful. It is making me wish we had waited to buy the new house until the old one sold, but the new house was a fantastic deal and perfect for us.

powskier

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Re: Anyone here take the risk of carrying two mortages?
« Reply #19 on: July 10, 2015, 12:01:17 AM »
If you are comfortable with the numbers, why not?
We did this when we purchased our house, we didn't want to sell our previous home because we worried we might not like the big city move. we rented our previous home, that payment almost covered the whole mortgage. One year later , being happy with our move we sold our old place to the tenants. This was great as every time the closing got pushed back a month they just payed rent again. :)

katstache92

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Re: Anyone here take the risk of carrying two mortages?
« Reply #20 on: July 13, 2015, 01:51:31 PM »
I am in this situation now.  I made sure that I could handle both payments indefinitely.  While it's not fun to pay two mortgages at once, it let me do what I needed to do when I needed to do it.  As a bonus the market turned around a bit and I was able to list for more than expected.

Someone mentioned above that the loan officer will consider your old mortgage as well as the new one.  Since I was intending to sell my old home the loan officer also had to confirm I had enough cash on hand - after closing costs and down payment - to pay both mortgages for 6 months.

Sidebar - I'm under contract now and waiting for the appraisal (fingers crossed!) before we close on 7/24!

grettman

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Re: Anyone here take the risk of carrying two mortages?
« Reply #21 on: July 14, 2015, 04:42:54 AM »
Hi everyone,

I haven't gotten notices of the recent replies to my post so my lack of response hasn't been because I am not appreciative of the responses!  Thanks very much.  I don't want to rent my house out and will just make the payments from my income and if need be, I will dip a little into my savings to cover any shortfalls.  It will suck if I can't sell it quick but I want time to buy wo prssure. If I sell first and have have pressure to buy, I fear I will make a rash decision or end up renting.  Mathematically and from a hassle perspective, renting is the least favorable alternative.

BlueHouse

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Re: Anyone here take the risk of carrying two mortages?
« Reply #22 on: July 14, 2015, 05:34:07 AM »
I have done it, worked out well.

Wanted to buy a new larger house a few years ago while prices were still pretty depressed.  Market had not recovered enough to be in a good place to sell house we lived in at the time.  Decided to go for it and buy the new place and rent out the other house for a few years.  Actually just ended up selling the original house last week after it had recovered about 50k of value the past 3 years so it was a great move and a huge weight off my shoulders!

We had enough cash flow to pay both mortgages indefinitely while looking for a renter or during yearly vacancy/turnover without using savings, so the risk was minimal.  I ended up floating 4 months of mortgage total out of the 3 years, though 2 of those were at the end while it was vacant and on the market/in escrow to be sold, and i was able to pay for those months out of accumulated cash flow profit from renting so no real out of pocket money.  The rest of the time it was covered by the tenants.

Something to keep in mind:  when I went to qualify for this at the bank, they required that I meet the underwritting thresholds for debt/income ratios including both mortgages together, not just the one i was applying for, and would not give me any credit for potential rental income because I had no rental history on the place or signed lease at the time.  This was actually pleasantly surprising to see they were that strict before lending out cash.  This may or may not be an issue depending on how high a % of income the two payments consume.  I think if you are planning to sell the first house and not rent it out then they may relax this requirement.
The first paragraph describes my situation exactly, except that I haven't sold the first place yet.
The other big difference is that my lender did allow me to count some potential rental income despite my never having been a landlord previously. They told me I could use 75% of expected rental income in my figures. That was in 2012

MandyM

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Re: Anyone here take the risk of carrying two mortages?
« Reply #23 on: July 14, 2015, 05:58:06 AM »
I did this a couple of years ago. I have a number of pets and it is not practical to show a house while they all still live there. So I bought my new house, moved, then listed. I was lucky that it only took 3 weeks to get under contract. I think I had maybe two months of double payments. It also helped that I was downsizing, so my new payment was close to half of my old. It didn't hurt as much to add it on to the budget for a couple months.

The main thing that helped is that I live on >50% of my income. Lots of room for a temporary budget swell.

Neustache

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Re: Anyone here take the risk of carrying two mortages?
« Reply #24 on: July 14, 2015, 06:03:09 AM »
We did this, but we turned the 2nd house into a rental.  We did what Bearded Man did and priced the rent below market, and we never made a double mortgage payment as we had a renter move in the month we moved out of the house.

But maintenance on two houses has been a bit rough.  Price it low and it will get sold quickly.

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Re: Anyone here take the risk of carrying two mortages?
« Reply #25 on: July 14, 2015, 06:17:19 AM »
We did this when we moved. The market was crap, so we didn't even bother to list the current house before buying the new one.

Holding the first mortgage didn't have any effect at all on our ability to get the new mortgage. We were "pre-qualified" for twice what we had decided our budget was going to be, and got an awesome rate- so the bank didn't even blink.

We did have awhile we had to pay for both, but it was not a big deal. We normally have a 70% savings rate, so on those months, it was a bit lower.

We did turn the second house into a rental, and had good tenants, but repair costs killed us. I was really happy when the tenants decided they wanted to buy the house!

gt7152b

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Re: Anyone here take the risk of carrying two mortages?
« Reply #26 on: July 14, 2015, 03:13:56 PM »
I've done it 3 times before, every time I've moved and had fairly good experiences with it:

1) Went under contract on new house first but old house actually closed before new house. No 2nd mortgage.

2) Only needed to move to reduce commute so I used the time my old house was on the market to find a good deal and give me leverage to negotiate. We offered on 3 different houses and didn't budge much from our initial offers. Old house closed nearly 3 months after new one. This was a somewhat stressful time and felt a little pressure to do more repairs than what were reasonable on old house but we made up for it with the new house purchase.

3) Similar to 2) we weren't forced to move so just looking for a good deal and the right house. Contract on new house before any offers but ended up closing on the old one a week after the new one and it was a fair deal.

Important thing is to know the houses and markets really well where you are selling and buying. Do your own research instead of just listening to the real estate agents alone. It's all about assessing your risk.

NoNonsenseLandlord

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Re: Anyone here take the risk of carrying two mortages?
« Reply #27 on: July 14, 2015, 09:18:43 PM »
My first 4-plex I had to get a mortgage on, in addition to my own home.  The place was vacant, and needed about $40K worth of work.  And I needed 100K to put down.  The new mortge effectively doubled my own home's mortgage.

It was a risk, but well worth it in the end.

I am not sure if I would do it just to move.  There is never a problem selling homes, the problem is pricing them right.

grettman

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Re: Anyone here take the risk of carrying two mortages?
« Reply #28 on: July 16, 2015, 01:35:39 PM »
Thanks all for the responses.  I have a lot to ponder.  I will also talk to a real estate agent about trying to time things so that hopefully, I can sell and buy concurrenlty without actually realizing the risk.  Frankly, I want to make sure I buy the right place, at a good price, and not be "rushed".  That, for me, is more valuable than having to float my mortgage for a while.  The good news is that I am in a market that isn't hot, isn't cold...I guess I could say its "lukewarm".  I just need to get psyched up for the possibility of the worst case scenario -- the house sitting for too long.

grettman

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Re: Anyone here take the risk of carrying two mortages?
« Reply #29 on: August 02, 2015, 03:36:24 AM »
I have a follow on question to my original: 

So let's say I have to carry the mortgage on my current home....assume 6 months.  Meanwhile I am paying mortgage on the new home.

Which interest can I claim as a deduction on my taxes?  Only one?  (if so which one) or Both?

Thanks!

PS:  I am trying to figure out all the damage that carrying two mortgages can cause. 

psinguine

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Re: Anyone here take the risk of carrying two mortages?
« Reply #30 on: August 02, 2015, 01:52:36 PM »
My wife and I have been carrying two mortgages, intentionally, since April. We live in a low cost area so it's really no big deal, both mortgages come out to less than half of what it would be if we lived closer to a city center. One of them is our primary residence, and it only has five years remaining on a 10 year amortization. The second we bought because of its income potential and nothing more. The company that my wife works for, a federal nationwide entity, is now our renter. They rent a portion of the space to run their local operation. As such they subsidize the mortgage, cover the insurance, pay for the phones, and a whole pile of other expenses can be deducted at tax time. And in time when we move in to the main building we will not only eliminate 100% of my wife's commute, we will also be living there largely for free.

But even if moving was not in the cards we could carry both mortgages indefinitely. Having a renter, especially a long term built in one, makes the decision a lot easier.

Terrestrial

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Re: Anyone here take the risk of carrying two mortages?
« Reply #31 on: August 03, 2015, 10:26:33 AM »
I have a follow on question to my original: 

So let's say I have to carry the mortgage on my current home....assume 6 months.  Meanwhile I am paying mortgage on the new home.

Which interest can I claim as a deduction on my taxes?  Only one?  (if so which one) or Both?

Thanks!

PS:  I am trying to figure out all the damage that carrying two mortgages can cause.

It depends how you classify the second property.

I know there are some caveats, but in general I believe you can deduct mortgage interest on a second home as long as it is classified as a residence (i.e. not something you are renting out or making money on).  Some tax experts might have to chime in here, I have only had second properties as rentals.

If you are renting out the home  (or it's vacant but you are trying to rent it and it is available to be rented) the interest is classified as an expense of the rental property and you report it on schedule E.

grettman

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Re: Anyone here take the risk of carrying two mortages?
« Reply #32 on: August 03, 2015, 10:43:33 AM »
I don't plan to rent out the house.  I am just preparing for the possibility that I will have to float the mortgage for a period of time.


I found this article by using google (again).  I couldn't find anything before that answered the question in a straight manner.  Sounds like I am on safe ground to claim both home's interest but I will check with the IRS pub on it.

http://www.bankrate.com/finance/taxes/deducting-mortgage-interest.aspx
« Last Edit: August 03, 2015, 10:45:53 AM by grettman »

zephyr911

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Re: Anyone here take the risk of carrying two mortages?
« Reply #33 on: August 03, 2015, 01:21:34 PM »
I have a follow on question to my original: 

So let's say I have to carry the mortgage on my current home....assume 6 months.  Meanwhile I am paying mortgage on the new home.

Which interest can I claim as a deduction on my taxes?  Only one?  (if so which one) or Both?

Thanks!

PS:  I am trying to figure out all the damage that carrying two mortgages can cause.

It depends how you classify the second property.

I know there are some caveats, but in general I believe you can deduct mortgage interest on a second home as long as it is classified as a residence (i.e. not something you are renting out or making money on).  Some tax experts might have to chime in here, I have only had second properties as rentals.

If you are renting out the home  (or it's vacant but you are trying to rent it and it is available to be rented) the interest is classified as an expense of the rental property and you report it on schedule E.
If you itemize deductions, that is correct. Second-home mortgage interest has its own line on the Schedule A.