Wishing you had a vacation home you could get away to right about now- either to catch that fresh powder in Colorado or some warm sunny rays at the coast? Check this out before you sign the dotted line!
One: Decide Whether a Second Home Makes Financial Sense
Whether or not you consider yourself an investor, you no doubt want your second house purchase to be a sound financial move. Yet many second-home owners complain that the house — including not just the purchase price, but ongoing expenses — ended up costing more than they’d ever imagined. You’ll want to tally up your likely expenses, factoring in any extra costs based on the fact that you won’t be there every day (such as hiring a management company and the relatively high cost of hazard insurance). Then you’ll need to build up your cash reserve, and, if you plan on renting out the property, determine how much you can expect from rental income (it’s often not enough to cover your monthly costs).
Two: Decide Where, and What Type of Second Home You’ll Buy
A home in a badly chosen location won’t serve anyone’s goals — an investor can’t resell or rent it, a vacationer won’t enjoy it, and a future retiree may have to pick up and move again. You’ll need to rely on both market research and your own personal preferences. Look into factors like the strength of the local economy, trends in house resale values, convenience and amenities, property tax rates, the quality of local schools and medical care, and more.
The type of home you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type serves you best will depend on factors such as cost, location, and upkeep. For example, condos, townhouses, and co-ops typically require less maintenance, since the areas of the property outside your unit are governed and maintained by a community association (of which you’ll be a member). However, you’ll pay for that maintenance in the form of monthly fees and special assessments.
Three: Come up With Short-Term Cash and Long-Term Financing
Most people pay for their second home with a combination of a down payment and a loan for the remaining amount. The higher your down payment, the lower the loan, and the more house you can therefore afford. In order to come up with down payment cash (which should be at least 20% of the purchase price), you may need to get creative. Using the equity in your primary home, borrowing against a life insurance policy, or refinancing your car are among the possibilities. That’s where a lender like me can help. Most buyers will also need to get a home loan to complete the rest of the financing. By reviewing the various mortgage options and sample payment schedules and factoring in your own short- and long-term goals, you should be able to find a mortgage that suits you.
There’s enough to get you thinking, then you can start decorating and get your bags packed!