Buying a Second Home or Vacation Home

Six Steps to Consider Before Buying a Second Property

Are you considering buying a second home?  Before moving ahead, you will want to consider several factors in your decision making process.  It doesn’t matter if you are looking for a vacation home, a getaway, a place to sometime retire, or an investment property.  If you are considering an investment property, follow this link: Buying An Investment Property.

 1.  Does buying a second home make sound financial sense for you?

Buying a second home is more than just the purchase price of the house.  Future consideration should be the continued expenses, such as property taxes, insurance, utilities and maintenance.  No matter what you budget, you will find you should allow a little extra for incidentals and replacement of major appliances, etc. 

2.  Deciding where and what type of house you want to purchase

The old adage, location, location, location is never so true when it comes to making an investment for a second   property.  You want to get a good feel of the surrounding communities and developments.  Even talking to current property owners will give you a good idea as to how the area stacks up.

You also want to study the market trends, such as employment, taxes, and the overall strength of the economy, including the local schools and the proximity and quality of the medical facilities.

The type of home you purchase is very important.  For example, the cost and maintenance of a single family home are much more from that of owning a condo or townhouse.  What about yard maintenance, community associations, and by laws that keep homeowners in line when it comes to storage and appearance of the community.  Is the house nearby to shopping or a park?  Is the home in a flood zone?  Has there ever been extensive flooding in that area?

3.  How about taxes?

Wish as we may, you cannot escape taxes.  All properties have some form of tax.  Taxes may vary by state and locality.  Find out the tax burdens before making a commitment to purchase.  You may find a community, just a short distance away that has less tax implications. Taxes continue even when you have paid off the mortgage.

4.  Do you have the assets to make the purchase possible? 

Very few buyers pay cash for their second homes and most will pay for their home by presenting a down payment and a mortgage loan for the remaining balance.  The more you are able to put down, then, the lower will be your mortgage, which will reduce your monthly mortgage payment.  Most second home buyers put down a minimum of 10%, but 20% down is becoming more of the norm.  Doing a 20% down payment allows you to escape having to pay mortgage insurance, which can add a significant amount to your monthly payment. 

5.   Be sure to protect you investment

Before you purchase any home, we strongly recommend that you get a home inspection.  You want to know now rather than later if there is an issue looming that may lead to thousands of additional expense. 

At settlement be sure to consider buying Owners Title Insurance.  This will help protect you and your down payment if later on a lien was not uncovered during the title search.  All lenders will require that you purchase lenders title insurance.

Next, you will be required by all lenders to get hazard insurance.  Hazard insurance is basically homeowners insurance and helps to protect your property against fire primarily.  Additional insurance may be required, such as flood insurance if you are now or sometime in the future are deemed to be in a flood zone.  Rain and wind are additional coverage’s you may want to consider, depending on the location of your home to a potential hazard, for example, the ocean. 

6.  How does financing differ when purchasing a second home versus a primary home? 

The loan procedures and underwriting for a second home are no different than a primary.  Since 2008, lenders are concerned that your second home is indeed a second home and not an investment property.  Some buyers have attested to buying a second home to get a lower rate, rather than admitting the second home is going to be an investment property.  To make it perfectly clear, if you rent your property, then in the eyes of the investor, you own an investment property.  

Summary: 

The process for buying a second home is exciting.  Upon giving careful consideration to the latter, we hope you come to enjoy the opportunity of owning yet another home.

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