Buying a Second Home
Considering buying a second home? It’s a big step to take, and this guide can help you decide if you’re ready.
Vacation homes can help families build lasting memories. Meanwhile, investment properties can offer a great deal of income. But before you call a real estate agent and head to open houses, think through what buying a second home may look like for you. In this guide, you’ll find questions to ask yourself before buying a home, and you’ll learn some valuable tips to help you discover how to purchase a second home.
Is a second home right for you?
You’ve always dreamed of owning a quaint house by the beach. Or maybe you’re looking to escape a crowded, fast-paced city. Before moving too far ahead, make sure a second home is right for your lifestyle and budget. Next, we’ll go over some questions you may be wondering about before starting your second home shopping journey.
Is it harder to buy a second home?
Whether you’re buying a second house as a vacation home or investment property, lenders typically see second homes as riskier. Therefore, the requirements can be more strict than they were for your first home.
How much do you need to put down on a second house?
Compared to a primary home, a larger down payment is usually required. Down payments for second homes can range from 10 to 20% depending on the type of loan you get.
Can you buy another house if you already have a mortgage?
If you already have a mortgage and are looking to take out a second home mortgage, many of the same factors from your first mortgage will determine your ability to get a second. A few main factors are your credit report, FICO score, debt-to-income ratio and down payment.
How are taxes impacted with a second home?
First, decide if you’ll rent out your home. If you don’t rent it out, your taxes will be similar to those on a primary residence. However, if you do rent your home, you’ll have more deductions available, but you’ll also need to pay income tax on your rental earnings. To find out exactly how your taxes will change, it’s best to talk to an accountant.
Does your current lifestyle allow for a second home?
Now that we’ve covered some of the financial aspects on how to buy a second home, we’ll go through some lifestyle impacts to consider.
Will you be able to use your second home frequently? Or rent it out?
A second home sounds like a great idea, but will you visit it often enough? Perhaps you have pets who don’t like to travel. Or maybe you have young children who thrive on routine. Consider all of the variables in your life and ensure you’re able to visit your home − or rent it out − frequently.
Can you hire someone to take care of the home while you’re not there?
All homes, including second homes, require regular maintenance. You need to plan how you’ll take care of unexpected (or planned) work. For example, are you able to hire someone to mow the lawn, take care of the plumbing and clean if you’re unavailable?
What purpose should your second home serve?
Before researching second homes, think about your goals: Are you simply looking for a vacation home, or an opportunity to earn extra income? If you want a second home long term, consider locations that are conducive to you and your family’s lifestyles. Look into areas where you already enjoy spending time or can potentially envision settling down.
If you want your second home to be an investment, rental properties can provide a great source of income during the weeks or seasons you’re not around. But they’ll also keep you busy, since you’ll be assuming the role of landlord and taking care of your tenants’ needs. If you need help, you can consider hiring a property manager – although doing so can reduce your returns on investment.
Regardless of how you plan to use your additional property, you’ll need to purchase a second insurance policy, which may be different from your existing home insurance coverage. Your second home’s location, type of property, amenities and occupancy can all impact your premium.
And because owning another home means taking on a new financial responsibility, it can also impact your need for life insurance. Be sure to review your coverage, perhaps aligning a term policy with the length of your second home mortgage if you need to take one out.
What type of second home should you buy?
If you’re using your second property as a lasting vacation home, make sure it’ll grow with you and your family over the years. Find a spot that’s easy to maintain, whether it’s choosing a tidy patio in lieu of a sprawling lawn, or a house with enough space.
When investing in rental properties, look for areas that will be attractive to renters, such as neighborhoods close to a college campus or vacation hot spots. For an idea of which location may work best for you, consider these potential settings:
A lake retreat
Before buying a lake house, try renting a place in the area to see which setting you like best: on the water, a few blocks inland or closer to town. How close a lake is to your primary home will likely impact your decision for this option.
A mountain town
Are outdoor activities like skiing in the winter and hiking in the summer right up your alley? Consider a property up in the clouds, whether it’s a fancy resort setting or smaller ski town.
Rural countryside
If you’re looking for a secluded getaway, a country home off the grid can be just the ticket. With plenty of trees and few neighbors, this personal retreat can help you escape, slow down and take in the day.
Now that you have some tips on how to buy a second home, the fun can begin. Call a reputable real estate agent in the area where you’d like to buy. Then start visiting open houses and making appointments to see homes. This is when you can consider home features and how much work needs to be done.
Above all, take your time during the purchasing process. Doing your due diligence now will pay off as you’ll truly be able to enjoy your investment later on.
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