Already own a home and thinking about buying another? There are many benefits that can be realized by purchasing a vacation home or a second home.
However, before you make your decision, it ‘s important to do three things:
1. Consider Your Goals
Maybe you want a vacation home to visit on weekends, holidays, or in the summer. Or you’d like to live in the home when you retire or pass it on to your children. Owning a second home may come with perks, like potential tax write-offs, depending on how you use it.
However, a second home for vacations is very different from an investment property you buy to generate income. That difference can affect your finances, including the taxes you owe on the property and the type of insurance coverage you need.
2. Run The Numbers
First things first: consider whether you have the down payment you need and if you can afford to take on a second mortgage. Do you have a stable income and a cash reserve? Keep in mind the additional expenses of owning a second home such as property taxes, insurance, maintenance, repairs, furnishings, and property-management fees.
The tax implications of a second home largely depend on the type of property you buy and how you use it. Consult a mortgage advisor for guidance on how a second home purchase could affect your taxes, since you may be eligible for mortgage interest deductions.
3. Understand Your Mortgage Options
You may be able to get a lower interest rate on your loan if you make a large down payment, since you borrowed a smaller percentage of the property’s value (this is the called the loan-to-value ratio). Loans available for vacation homes tend to be more conservative than those for primary residences, and you may need a down payment of 20 percent or more, especially if you need a jumbo loan.
Conclusion
Buying a second home can be complicated and may take some time, but with forethought, preparation, and some help from experts you can make an informed decision that’s appropriate for your situation.
A professional mortgage advisor can help you better understand the costs of purchasing a second home and the available loan options. They can also help you get prequalified or pre-approved for a loan before you start looking at properties.
If you would like to know if it makes financial sense for you to purchase a second home, or are curious how much financing you can qualify for, fill out the form below to request a free Total Cost Analysis from one of our mortgage advisors.
