If finding your dream home means purchasing a second home, many market experts seem to feel that this is an excellent time to do so. The real estate market is still in recovery mode, so the tables have yet to turn on buyers and interest rates remain reasonable. What’s more, financial forecasters have long advised that buying a retirement home is something you want to look into 5 to 10 years before you stop working.Here are some useful ideas about the steps involved when looking into purchasing a second home.
Assess the Market
Perhaps try finding a real estate agent that’s familiar with the area you’re contemplating. Do a Google search for ‘how to find a real estate agent’ with the location listed afterwards. This person can then hopefully become an informant of sorts, helping you understand the pros and any hidden cons to the location. If the agent has history in the location, working with a Realtor can also help you understand the return on long-term property investments in that area, whether you’re buying a luxury home or a cabin. Many city dwellers look for second homes in rural areas, but feel more secure when they’re still within fair reach of the city. An agent can help you determine which areas are overcrowded already and which ones still truly provide a respite from city life.
The Return on Your Investment
Quick property flipping isn’t in-vogue anymore, so most people in the market for a second home are actually looking to live there for a spell. Naturally, you want to believe that the property will increase in value during your ownership, but a second home is more about relaxation and enjoyment. Don’t let anxiety about the market weight down the process. If it’s inescapable for you, maybe the time isn’t right. Regardless, it’s always smart to run long-term numbers and figure in additional maintenance costs since you will not be living at this residence full-time.
Consider the Insurance Carefully
Many folks dream of a second home on the beach, but it’s getting hard to insure them. Flood insurance, in particular, presents buyers with challenges. Keep in mind that whatever your experience with your insurance company, a second home will likely make it more difficult. Companies are concerned about long distances between residences, not to mention being unattended for long stretches of time.
Mortgage Financing
This is a snafu for many folks. naturally, the factors that lenders look at for a second residence are much the same as for the primary one… but you’re carrying whatever debt may still exist on the first home. If you’re carrying a fair amount of debt on credit cards or other outstanding loans, it may be impossible to secure the financing you desire. Figure a down-payment between 10 and 20%, good credit and workable looking debt-to-income numbers. While the days when you could leverage your primary residence to achieve a minimal down payment on another are long behind us, you may still be able to use any accumulated equity on your primary residence to fund your new purchase. But that also means that you will likely not be able to access that equity if an emergency arises, so choose carefully.
You’ll also want to factor in the tax implications when purchasing a second home; you may qualify for a deduction depending on how much time you actually live in the second residence.
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