Do you dream of owning a second home? A house by the ocean or in the mountains situated near a creek? Did you know a second home is also an investment property? When you purchase a second home and do not use it as your primary residence, financing and insurance can be quite different. Maybe you want a vacation home to visit on the weekends, holidays or in the summer. Or you would like to live in the home when you retire or pass it onto your children.
Owning a second home may come with perks, like potential tax write-offs, depending on how you use it. There are many benefits in purchasing a second home. If you decide to rent the property, when not using it, you could have some income potential. But a second home for vacations is different from an investment property you buy to generate income. That difference can affect your finances, including the taxes you owe on the property and the type of the insurance coverage you need.
There are a few steps to consider before purchasing a second home. Run the numbers to consider if you have the down payment you need and if you can afford to take on a second mortgage. Consider the other expenses that come with owning a home such as property taxes, insurance, maintenance, repairs, furniture and property management fees. Contact your tax advisor to see if this is a good investment for you and your family.
Next, talk to your local mortgage lender to see which financing options best suit your needs. Mortgage qualifications are tougher for a second home. For conventional financing on a second home, many lenders will want at least 20% down. Income requirements are also stiffer. You will need to show your income is high enough and your debt low enough to qualify for the second home mortgage. The lender will consider your taxes and insurance when calculating your payment and these can be higher especially in a resort area.
If you qualify to purchase a second home, it can be a great investment and a great escape for you and your family. More family time is important. Do some research. Whether you like the beach, the mountains or a villa in another country, make sure you enjoy the area and can see yourself living there. This is a huge purchase that needs careful thought.
In this college town, parents purchase a second home or townhome as an investment for their children to live in while attending school. This makes perfect sense if you have several kids that will be attending the same university. Many times, the mortgage payment is cheaper than the rent and you are hopefully making a wise investment.
Regardless as to which type of home you use, contact your REALTOR® to start looking for that perfect investment. Remember to do good things!
Stephanie Lemley, 2021 MBOR President