Buying a second home can be an awesome experience for years to come, but financially, I’d like to share some of the things that you might want to think about first.
How much will it cost? It’s not just the sales price – there are other costs associated with it. Maintenance. Property taxes. Insurance (which is usually more expensive than for a first home). The experts claim that the expenses are about 20% higher than your primary residence.
Can you afford it? It’s important to do the numbers. While it may be a fun getaway, take a look at your finances. Do you have 6 months’ worth of mortgage payments socked away to cover your current mortgage and second home mortgage — in case of a job loss or health issue?
Are you buying a second home for the right reasons? How much time will you spend there? How much vacation time do you have each year? How many times will family members use it? Do the numbers and compare it to the cost of travel, hotel rooms and meals. However, if you are buying it as an investment in an area that is appreciating or you plan to retire there, that’s another story.
What are the long-term plans? Are you going to have exclusive use of the home, or do you plan to rent it out for part of the year? Be sure to review the rental rules in the area because not all areas allow rentals based on the homeowner’s association covenants. Income tax rules are different for second homes and rental income, so check with an accountant before you buy.
Can you find hired help? If the second home is quite a distance from your home and it needs repairs, are there contractors or handymen available to help you out in a pinch? In some more remote areas, help is either hard to find — or more expensive.
Ask about weather-related conditions. If located near a river, lake or shoreline, do you need to buy flood insurance? Earthquakes. Hurricanes. Tornados. Check the history of weather-related occurrences over the past 10 years because it will also increase the cost of your insurance. Not to mention the downtime to make repairs.
Finally, don’t rush into making a decision. Make sure that you aren’t buying your second home purely based on impulse or emotions. Take your time to find the property you really want. Do the math so you know you can afford it.
And let us know if you need a mortgage to buy that second home. We have plenty of experience with loan origination and can even help find you a realtor.