What to Know About Buying a Second Home

Buying a second home is a very exciting life upgrade. A second home can be the place you go to escape the stresses of everyday life, even if it’s just for a weekend.

The interest in buying a second home has spiked in recent years. In fact, In 2020, vacation home sales rose 16.4%, as more people are seeking out a home away from home.

But whether your second home is a vacation home or a real estate investment, there is a lot you may want to consider before you can get those house keys.

The costs of owning and maintaining a home are a lot, so now imagine all that’s doubled. As exciting as buying a second home is, it’s also a huge undertaking that you want to be sure of.

In this blog post, we’ll be going over the reasons you might consider this investment, potential uses for another property, how to buy a second home, and more.

To learn more about the feasibility of buying a second home and if it’s the right choice for you, continue reading or use the links below to skip to a section of your choice.

Should I Buy a Second Home?

Whether or not you buy a second home is ultimately a personal decision. You can buy a second home as a vacation home, or you can buy a second home as an investment property. But regardless of your reasoning, it’s important that you do some research about the process and pros and cons of buying a second home so that you can get an idea of what you’re in for and if it’s the right choice for you.

Reasons You Might Want to Buy a Second Home

There are various reasons why you might want to buy a second home:

• It’s a vacation spot for your family: One of the most popular reasons to buy a second home is for it to be a vacation spot for your family. Having a vacation home makes it easy when you want to get away and spend some quality time with your loved ones.
• It adds to your assets: Homes typically increase in value, so buying a second home can be a good way to diversify your assets and potentially make money from it later on down the road.
• It can create a second stream of income: If you buy a second home as an investment property, it can create a second stream of income for you. You can rent out your home part-time and still have it available to vacation in, or you can rent it out to families on annual leases. The choice is yours.
• You can get potential tax advantages: If you have a second property, you may be eligible for the mortgage interest deduction and property taxes. If you use it more as a rental, you can deduct rental expenses since it’s considered a business. Depending on how many days you use it as a residence vs. rental property will impact what and how much you can write off.

If you’re feeling generous, you can also buy property for another family member: Some people buy a second home to rent out to their adult children or to use as a place for their parents to live in as they get older. 

Reasons That Buying a Second Home Might Not Be the Right Call

Just as there are reasons why you should buy a second home, there are also reasons why it might not be the right call, including:

• You can’t afford a down payment: On a conventional mortgage loan, you have to make a down payment in order to buy a home, so if you don’t have that money ready to put forward in a lump sum, then buying a second home might not be a good decision.
• You have poor credit: You typically need a higher credit score to buy a home, and if your score is lower, the lender will likely charge you a much higher interest rate.
• You don’t have a stable job: Buying a second home is a huge financial responsibility, so it’s crucial that you have a stable job. You don’t want to end up going into foreclosure because you couldn’t afford your mortgage payments.

Potential Uses for a Second Home

Before you buy a second home, you want to have an idea of what the use of the home will be. This will help you figure out if buying a second home is actually a good decision or not. It can help you better prepare for the costs associated with the home. Some of the potential uses for a second home include:

• Vacation home: Having a vacation home is great if you have a big family because you have a set place where you can visit together easily. And because you own the home, vacationing will be a lot cheaper. 
• Investment: You have a couple of options if you choose to use your second home as an investment property. You can buy and resell a home, which in this case you may want to look for foreclosed listings that you can flip and make a bigger profit from. Or you can buy a second home and rent it out either part-time or as an annual lease. It’s also important to consider the different house types so you can buy the right type of property.
• New residence: Another common use for a second home is just to use it as a new residence, meaning you’ll now live in this home and rent out your other home. This may be a good option if you’ve been looking to move elsewhere or expand your family.

How to Buy a Second Home

Buying a second home typically follows the same steps that you followed to buy your first home. However, the mortgages you can use and their qualifications will differ for a second home. 

If you’re interested in buying a second home, here are the general steps you’ll follow:

1. Think about all the costs associated with a second home: There are various costs that come with a second home that will vary depending on how you use your home. Some of these costs include homeowners insurance, utilities, maintenance, and vacancy. There are all costs you should incorporate into your monthly budget so that you can stay on top of your finances. You can use a home budget template to help you get started.
2. Consider how you’re going to finance your second home: You have a couple of different options for how you’re going to finance your second home, but lenders will typically have different rates and qualification requirements for second homes.
3. Qualify for a second-home mortgage: Second homes are generally seen as a riskier purchase, which is why lenders will have different qualification requirements. So in order to qualify for a second-home mortgage, you’ll most likely need a high credit score and have to make a larger down payment.
4. Find your second home: Once you’ve accomplished the hard part of figuring out how you’re going to afford a second home, then comes the exciting part: actually finding out what you like. You should choose a realtor who you trust and who understands your needs and work together to find your ideal second home.

When Is a Good Time to Buy a Second Home?

The best time to buy a second home ultimately comes down to the buyer’s personal choice. But overall, a good time to buy a second home is when you’re financially stable, it’s a buyers’ market, and you’ve settled on the purpose and location you’d like for your second home.

Where Should You Buy a Second Home?

Where to buy a second home also depends on the buyer’s personal choice. If you’re using your second home as a vacation home, you want to buy it somewhere that you and your family love vacationing at. But if you’re going to be renting your second home, you want to buy it in an area where a lot of people rent or travel to. 

When deciding where to buy, you may want to consider things like the cost of living and cost of transportation in that area, so you can figure out if it fits in your budget and the likelihood that it’ll be desirable to others.

Can I Afford a Second Home?

So now that you know how to buy a second home, you may be wondering: Can I buy a second home? 

There are a couple of key factors you should keep in mind:

• Down payment and interest rates: Just like with your first home, your second home will also require a down payment and a mortgage.
• Debt-to-income ratio requirements: In order to qualify for a mortgage for your second home, you have to meet the debt-to-income ratio requirements, which is basically the amount of money you have compared to the amount of money you make.
• Budgeting: Before you can buy a second home, you’ll have to do some serious budgeting to make sure you can realistically afford another mortgage. You’ll also want to keep in mind property taxes and upkeep costs of having another home.
• Maintenance: Having a home requires a lot of maintenance, especially if you’re renting the property. You need to make sure you can afford these maintenance costs, which means you’ll need even more money saved.

Make Smart Decisions When Buying a Second Home By Planning Ahead

If you’re thinking about buying a second home, you should start planning now. The more you prepare for a second home, the easier the process will go, with both affording the home and finding one that you like. Buying a home is a huge financial undertaking, and there are a lot of costs you may need to consider before you can start browsing on Zillow for your dream second home.

It’s a good idea to start budgeting as soon as you start thinking about getting a second home, and you can use the Mint app to do that. The Mint app can help you save and keep track of your monthly expenses for your second home. It’s easy to use and accessible from anywhere, so you can stay on track with your goals no matter where you are. Buying a second home is both exciting and scary, but Mint can help you feel more confident throughout your home buying journey.

Source: National Association of Realtors® 

Source: mint.intuit.com