With current mortgage rates at a historic low, you might be wondering how to buy a second home. But beware – it won’t be like your first. Here are some differences and advice to keep in mind.
First things first : Can you afford a second home?
If you scored a great deal on a mortgage for your primary residence, don’t expect the same offer twice. Second home loans generally require more money down and a better credit score than owner-occupied home loans. Expect more scrutiny into your finances than before. Lenders look carefully to ensure that second home buyers are financially capable of paying two mortgages. Make sure to review your budget with a second mortgage in mind – a healthy emergency fund and cash reserves are essential if an accident or job loss forces you to float two mortgages at once.
Evaluate your goals
Understand exactly how you plan to use the property before you sign on the dotted line. Buyers should consider their stage of life and of their children to ensure they are going to actually use the home for the amount of time that they’re envisioning. If you’re certain you’ll get enough use and enjoyment out of your new purchase, go for it – but make sure to carefully consider the market. For most buyers, a second home shouldn’t be a fixer upper. Look for homes in high-value areas that will appreciate over time without having to sacrifice every relaxing weekend to laborious renovations. Buying in an unfamiliar area? Take a few weekend trips to make sure it’s the right spot for you. Pay close attention to travel times and restaurant and recreation availability. And make sure to choose a knowledgeable local Realtor, who will know the local comps.
Understand your taxes
You may be familiar with a bevy of home credits and tax breaks for your first home, but not all them apply to your second home. Property tax rules and possible deductions for second homes are complicated and vary widely, depending on both the number of days per year that the owner occupies the home and the owner’s personal income level. A vacation home offers more flexibility to buy based on your potential tax burden – for instance, if you’re looking to buy in a high tax area, consider widening your search to another county, which can save you thousands of dollars. You should consult a tax professional, especially if you’re planning on renting out the house. A vacation home may be considered an investment property, introducing a whole headache of new deductions – which hopefully can decrease your tax burden.
