Considering purchasing a second home? With interest rates still being so low, now may be the perfect time. Here are a few things to consider before taking the plunge.
In addition to being able to afford the mortgage alone, you need to consider a couple of additional costs. For example, some mortgage companies may charge higher interest if you are considering using your second home as a rental (rentals tend to be considered more risky properties). Also, can you afford property taxes and any ongoing costs when you’re not around? Unfortunately water, electric, gas and other utility bills don’t simply vanish because you aren’t presently staying there.
If you plan on using your second home as a vacation home where you’ll spend more than just a few weeks away from it, you may consider hiring a property manager to regularly check on and care for your property.
If you have decided on a budget and would like to see if you can actually get approved for a second home and for how much, speak with a lender. Remember you will be getting an approval based on any current debt on your home plus the amount of the second home.
Typically, you will need to come up with a down payment of at least 10 percent to 20 percent, meet credit standards and debt-to-income requirements, and provide documents for income and asset verification.
Also, keep in mind if you would like to use the equity of your primary home to help finance the second home, you may not be able to access those funds for emergency situations.
If you are planning on using your second home as a vacation home, you need to consider how close you live to it and how often you will feasibly be able to visit. A vacation home should be located somewhere you can afford to travel to often in order for you to get good use of your investment.
Insuring a second home
Next, talk to your insurance company and get a better estimate of what to expect when you purchase a second home. Insuring with the same company you do with your first home may help you get a better rate.
Find a home
Once you have the finances all sorted out and a budget in place, contact a real estate agent to help you find your new home.
With vacation properties, you may quickly discover how cost-effective they can be in comparison to vacation rentals and hotels. You may also find benefits financially if you choose to rent out your property.
If you plant to rent out your home either permanently or periodically, consider the role you have to assume: landlord. You will need to understand and prepare short agreements and/or long-term leases. You will also need to be prepared to deal with ongoing management and repairs, as well as practical and legal issues with tenants.
Interested in getting your second home search started? Contact a realtor today.