5 Questions to Ask When Buying a Second Home
For some, it’s an investment. For others, it’s a place for holidays and weekends. If you’re not sure where to start on the journey to buying a second home, first consider what you want to get out of the second home. Check out our guide below to start considering some key questions before you get started on the exciting journey of buying a second home.
- Do you want to be the only owner?
You don’t have to buy a second home alone. Co-ownership can increase your buying power, allow you to buy a home in a more desirable location, and reduce the maintenance and management of a second home. Since you may only use the second property at certain times throughout the year, co-ownership could be the right answer for you.
Nestment makes buying a second home with a group of friends or family members possible. Whether you already have a group, need one more partner, or you’re looking for a group, we can help you create a new path to second home ownership.
- How will you use the second home?
A second home is an extra piece of real estate that you own, but it’s not your primary home. How do you envision using the second home? Do you intend to rent it out? Do you want to visit it on the weekends frequently throughout the year? Do you want to be a snowbird and escape the tough winters? Depending on how you answer these questions will help you choose the right second home for you.
If an additional revenue stream is your primary reason, you should determine if, and how much, you want to rent out the second home. Before purchasing the home, be sure to research local short-term rental (STR) laws in your area to make sure the practice isn’t banned. Or, if you want it to be an investment property, you should investigate a tenant-friendly neighborhood with reputable schools, a robust job market, and affordable monthly rent.
- In what location do you want your second home?
After you understand how you’ll use your second home, you can then begin to determine the perfect location. You may want to buy the home in your annual vacation spot, but there are first some important factors to consider.
How often will you be at the second home? If you plan to visit many weekends, you’ll need a home within driving distance of your primary residence. If you only plan to visit a few times a year, you could then pursue a second home that is much farther away.
However, bear in mind that the farther away the second home is the more difficult it can be to manage it. You’d likely need to rely on a property manager. You’ll also then need to bear higher travel costs with frequent flights.
If you would like to rent out the home, consider buying a home in a top destination, such as near national parks, Lake Tahoe, or Palm Springs. Those locations are more likely to stay rented, and eventually sell than a second home in a more remote location.
- What kind of home do you want?
Whether it’s a first or second home, when we typically think of a home, we think of a single-family detached home. However, there are many other choices. Popular choices for a second home include condominiums (condos), townhomes and co-ops. These options may be smaller, but they usually cost less, have more amenities, and are less expensive to maintain. Many condos, townhomes and co-ops offer pools and/or exercise rooms onsite, adding to their value long-term.
- What is your budget?
If you long for a place for weekend getaways and long lazy vacations, the first consideration should be how to pay for it. As second homes are seen by lenders as being higher risk, second home loans have some key differences from first mortgages.
A few key differences include:
- You’ll need to front more money for a down payment. The minimum down payment for a vacation home is often 20%, but some lenders have raised their minimum down payment requirement to 30% or even 35% for a second home.
- To qualify for a conventional loan on a second home, you will need to meet higher credit score standards of 725 or even 750, depending on the lender.
- Vacation home loans often have a slightly higher interest rate than a home on a primary residence.
- You’ll have fewer options for financing a second home, as you cannot use a Federal Housing Administration (FHA) or Veterans Affairs (VA) loan.
Whether you want a second home for vacations or as an investment property, owning a second home is a great idea. Think about what kind of property you want to buy and how you want to use it. Keep your second home in good shape, and you’ll have a wonderful place you can enjoy for years to come.
Nestment, Inc. does not guarantee and is in no way responsible for the accuracy of information provided in this blog post. All information is provided “AS IS” and with all faults. Data presented here may not reflect all real estate activity in the market. While the information on this site is about legal and tax issues, it is not intended as legal or tax advice or as a substitute for the particularized advice of your own attorney and tax professional.
