Buying a second home can be major decision. It is important to know what it truly means to own a second home. Before looking at homes, you should make sure you can afford one and that you understand all of the implications to owning a second home. Finding the right real estate agent and mortgage lender to help you work through these questions is very important.
Important questions to ask before purchasing your second home:
- Can You Afford A Second Home: The first question you need to answer is, “Can I afford a second home?” You need to run the numbers in your budget to make sure you can afford a second mortgage. The best situation for purchasing a second home would be to have paid off your first mortgage. This would free up money for the second home and make lending much easier. If you still have your first mortgage in place, it will have a significant impact on your second mortgage. Second mortgage rates on average tend to be significantly higher than rates on a first mortgage. Also, it is important to keep in mind that down payments on second mortgages tend to run more than 20%. This is significant cash out of hand upfront.
- Vacation Home or Rental Property: A question that needs to be answered is, how do you intend to use the second property? This will affect many things including taxes and interest rates. If you’re renting out your first home and generating business income from it for 14 or more days per year, you won’t be eligible to deduct all of the mortgage interest on that second home. You will need to take the time to speak to an accountant concerning the tax implications of owning two homes. Understanding all of the tax rules and regulations upfront will prevent surprises in the end.
- Insurance Cost: If you leave your home unattended for weeks at a time, your homeowners policy likely won’t provide coverage in the event of a claim during the time it is unoccupied or vacant. As a result, any damages or losses that occur would have to be paid out of pocket. For these times, unoccupied and vacant home insurance products offer coverage for claims that would otherwise go unpaid by your home insurance company.
Give us a call at Raleigh Cary Realty for your real estate needs. https://www.raleighcaryrealty.com/contactus/