If you dream of having a vacation home – your own private getaway – you’re not alone. Many people dream of buying a second home, but few realize what’s actually involved in doing so. There are several things you should be aware of, and a few more to avoid. Most lenders consider giving financing for a second home riskier and might be less flexible with their terms than if it were a first mortgage. Let’s take a look at four things you should avoid when buying a second home.
1. Avoid limitations. Know your financing options.
There is a big difference in buying a second home and buying an investment property. Many new buyers do not know this. For instance, financing for a second home may only require a 10 percent down payment with a conventional loan, whereas financing for an investment property might require anywhere from 15 to 25 percent down, depending on the number of units on the property.
Something else inexperienced buyers do not realize is that there are options available for financing. You don’t have to take the first loan that comes along. In fact, there are even options for buying a second home with little to no money down. It pays to do your homework and shop around for the best deal. Never settle.
2. Avoid being unprepared. Plan for expenses upfront.
Since you already own one home, you have a good idea of the expenses you’ll incur buying a second home. While building equity in the second home is a good thing, if paying for the property leaves you broke each month, you might be better off waiting until your first mortgage is paid off. When purchasing a second home, you can expect the following expenses.
- Property taxes
3. Don’t miss the moneymaking aspect of owning a second home.
Owning a second home means you won’t be spending all your time there. It’s your second home, not your primary residence, so there’s a good chance it will sit empty most of the time. Rather than let it sit empty, why not rent it out when you’re not there to help pay the mortgage payment and property taxes throughout the year? What’s even better is that renting your second home out for part of the year gives you the opportunity to deduct some of its overhead costs including mortgage interest and maintenance.
4. Don’t pass up the chance to have your true dream vacation home.
One person’s idea of a dream vacation home isn’t someone else’s. Avoid missing your chance at the vacation home of your dreams by considering a fixer-upper. The beauty behind a fixer-upper is that you can make it your own with renovations and upgrades to suit your own tastes. Homes that need work or updating often carry a much lower purchase price than finished, modern ones. You’ll get a better deal, and get the dream home you’ve always wanted.
One word of caution here: be sure to have a home inspection done before buying. This will let you know what you’re getting into, and how much time it will take to fix it up. Also consider checking homeowners’ association rules and local zoning laws to make sure you can do what you want to make the house your own.