Before you start buying a second home, you probably have reservations that prevent you from making an immediate decision, as if it were too fancy. If you can afford a luxury car when interest rates are low, you can probably buy a second home, as long as you don’t overdo it and look for your second home in a reasonably priced area.
There are other things you should consider, from whether you can pay a second mortgage and any problems that arise at the time of taxes, the type of home you want, and any additional maintenance and other costs that will come into play.
Main steps to buy your second home.
1. Consider the location:
You can assume that deciding the selling price first is the most critical step, and while the price carries weight, it is not always what drives the decision to buy a second home. If you have the heart of a Hawaii beach vacation home, for example, it will be challenging to buy a single-family home on the water for half a million dollars. If the only place you can afford is near and you don’t want to live where it rains a lot, then your search on this island is over.
Location is the determining factor in the real estate sector. That is why you hear the mantra “location, location, location,” so much. You also need to decide whether you want to buy a second home within walking distance of your current home or whether you are going to take a train or fly to get there.
The frequency with which you plan to use the second home will have a direct relationship to your location. If it’s a weekend getaway, you’re likely to want this home within walking distance. If the second home is for a family vacation a year, it may be further away or located in another state or country.
2. Determine the type of house:
The kind of home you want to purchase for a second home can also include the location. For example, if you plan to buy a holiday home in the mountains, there are small huts on the side accessible to upscale farms that can number in the millions. Some people buy a second home primarily for investment purposes. Still, if you are purchasing the property as a rental, it may affect the type of property you are buying and the location. Compare mortgage, maintenance, and other costs and subtract the monthly rent you expect to receive. Be accurate when using current market rentals for the area of properties similar to yours. Make sure that any damage caused to tenants does not consume all of your profits or that it does not darken if the location is vacant for a few months.
If you want a house by the sea, even a small cabin costs a lot more than you can imagine. The stark reality is that, in the 2020 economy, mortgage rates are projected to continue to rise, and the millennium generation is acquiring properties, so you may have to settle for an ocean view. One of the important considerations here are any additional costs incurred to maintain or protect the property in its absence. This may include hiring a property management company to periodically check your mountain vacation home for frozen pipes, water leaks, and other problems. For example, if you decide to buy a beach house, remember that you may need flood insurance, which increased its cost by approximately 8% in 2018. The average price is roughly $ 700 a year, but that varies by location and specific flood risks.
3. Know your price range:
Buyers who overthink are ambitious by the greatness of it all or have not set the maximum amount they are willing to pay to buy a second home. Many buyers who wish to buy a second home intend to finance that purchase.
Part of the reason for obtaining a mortgage is that it offers tax deductions, such as interest and property taxes. Due to the Tax and Employment Reduction Act, a mortgage limit of $750,000 in mortgage interest deductions have been established; therefore, enter the numbers before you buy to see if you can deduct part of the interest on your second mortgage. If you intend to finance the purchase, your maximum price may be affected by interest rates and the mortgage payment amount (plus taxes, etc.) may have a more significant impact on you than the sale price. Pay attention to tax breaks and home loans, as they may not be as generous for a second home purchase. Cancellations and deductions vary depending on the amount of time you spend in your second home. So check with your tax advisor before making a purchase.
One way to determine if you can pay your mortgage payment is to start saving that amount in a savings account with each payment period. If you are comfortable and do not overload your budget, you are likely to be okay in the future, as long as you keep a mattress. Experts recommend at least six months of payments to a reserve fund. It can also be more challenging to qualify for a second mortgage because lenders tend to be more rigid. Check your housing expense ratio, which means that all housing expenses must amount to a maximum of 28% of your gross monthly salary. This includes mortgages, taxes, maintenance costs, HOA fees, and other costs.
If you start to discover that there are few homes for sale in the set price range, it is time to review steps one and two. You may need to adjust your expectations: choose a different location or a different type of home.
4. Find an experienced real estate agent:
Now is not the time to get your cousin out of the cobwebs and ask him to help you buy a second home. Find a local real estate agent who represents buyers in the area where you want to buy. An experienced local agent must have valuable information and knowledge in the field.
It is crucial to consider the long-term or resale value of your property. To do this, an experienced local agent can tell you the history of comparable property prices and recent sales performance, as well as the prospects for reselling your specific home. The agent can also talk about preferred neighborhoods, the assets and problems of a particular house, current market prices, services nearby, and ease of access, especially during inclement weather.
Also, don’t make the mistake of thinking that the listing agent will always have your best interests at heart or that the listing agent will somehow take a break; choose your agent wisely.
5. Get a Preapproval Letter:
Your local real estate agent can probably recommend a local lender. You will make your offer better using a familiar lender, to build additional trust from the seller and listing agent. You can use your lender in your home country, but your preferred lender cannot lend in that area.
If an unknown mortgage lender can harm your chances by sending an offer, you may want to take advantage of that opportunity.
Many listing agents advise their customers to reject an offer if it appears without a letter of prior approval and if financing is involved. Ask if you can complete a mortgage application online. It is not necessary, in most cases, to meet in person with the mortgage lender. Also, by using a local lender, you increase the chances that the lender will remove an appraiser from a local group of appraisers. It is vital to have a local appraiser familiar with the neighborhood to assess your home. Some online mortgage lenders end up with out-of-area appraisers, and this is one way to get a low appraisal that can ruin your transaction.
In short, buying a second home is a great decision. Like any other real estate investment, the numbers need to work, and you must do your due diligence. Ideal summer vacation homes the perfect distance to amenities, the right size, and good neighborhoods – may be in high demand. Therefore, it is likely to take time and patience to buy one at the right price.