Are you considering buying a second home? Whether it’s for having a regular vacation spot or an additional source of income, the idea of owning a second home can be very enticing.
But before you jump into the market and make an offer, it’s important to understand the ins and outs of buying a secondary residence.
Verify your second home mortgage eligibility. Start hereIn this article (Skip to…)
- Key considerations
- Financing a second home
- Second home mortgage rates
- Phases of buying a second home
- Next steps
Key considerations for buying a second home
First and foremost, it’s crucial to determine whether you can afford a second home. This means creating a budget that takes into account loan-related expenses, ongoing expenses, and repairs and maintenance expenses.
Check your eligibility for a second home loan. Start hereYou’ll also need to consider where you want to buy your second home, as some areas may be more affordable than others. Some of the expenses to take into consideration include:
Loan-related expenses. When it comes to financing a second home, be prepared for slightly higher down payment requirements and interest rates compared to a primary residence. The minimum down payment requirement is typically 10%. And, don’t forget about closing costs, which generally range between 3-5% of the purchase price.
Ongoing expenses. Just like your primary residence, unless you’re paying cash for your second home, you’ll want to make sure you’re comfortable with the mortgage payment. Interest rates are typically higher for secondary properties, so be sure and account for the higher payment that comes with the higher rate. Remember to budget for utilities, property taxes, insurance, and HOA fees.
Repairs and maintenance expenses. As with all houses, your second home will eventually need a new roof, new HVAC, etc. Be sure to account for ongoing maintenance costs and unexpected emergencies.
Where to buy a second home?
Like the rest of the real estate market, second homes have gotten more expensive. For many would-be second home buyers, some locations are simply too costly to own a vacation property.
Fortunately, there are less expensive destinations where buying a second home is more affordable. According to Realtor.com, some of the most affordable places are located in Missouri, Pennsylvania, Florida, and Wisconsin.
Uses for a second home
Is a warmer climate important to you? Or, are you more interested in a home near snowcapped mountains and ski resorts? Do you want your second home to double as a rental property? A clear understanding of why you want a second home will help you choose the best home and location for you.
Some typical uses for a second home include using it as a vacation home to have a regular vacation spot, a rental property to generate additional income, or as a family retreat to spend quality time with loved ones.
The specific use of a second home will largely depend on your individual personal preferences, lifestyle, and financial goals.
Financing a second home
Qualifying for a second home mortgage can be a little tougher than one on a primary residence. This is because lenders view a second residence as slightly higher risk. Lenders offset the greater risk with higher down payment requirements and higher interest rates.
Most lenders require higher credit scores for secondary residences as well. Other financing requirements include the need for cash reserves. Typically, you’ll need to cover two to six months of mortgage payments on both your first and second home.
Verify your second home mortgage eligibility. Start here
What interest rate can I get on a second home?
Interest rates for second homes are typically half to a full point higher than those for a primary residence. This goes back to the added risk associated with secondary residences.
To get the best mortgage rate for your second home, be sure to shop with multiple lenders. Compare offers from at least three to five different mortgage lenders, and remember to look at their fees and annual percentage rates (APR) as well as the quoted mortgage rates.
Check your second home mortgage rates. Start here
Three phases of buying a second home
The process of buying a second home is very similar to buying a primary residence.
Verify your second home mortgage eligibility. Start hereStep 1: Get preapproved for a mortgage
Speaking with a lender is an essential first step when buying any home. This is especially important when it comes to second homes due to the more stringent underwriting requirements.
Start the financing process early on. This will make the process of buying your second home easier, and with fewer unwanted surprises.
Step 2: Find a real estate agent and start shopping
Finding a local real estate agent is key. Secondary residences are often located in areas you may not be completely familiar with.
A local agent can get you more information on the local community. They can help you find ideal neighborhoods and may even have access to properties before they hit the market. They can also provide you with targeted online search results so you’re not looking at homes that may not be a good fit.
Step 3: Make an offer and close on your second home
After you’ve found your second home, your real estate agent will work with you to write an offer. Once your offer is accepted, it’s back to your lender to complete the underwriting and final approval process. Typically, after 30-45 days, it’ll be time to sign closing documents and get the keys to your new second home.
Next steps: Is buying a second home right for you?
Buying a second home can be a dream come true for many people. It’s a great way for all your hard work to pay off.
However, a second home purchase requires a lot of thought and careful planning. Once you’ve decided to buy, your next step is talk to a lender to get fully pre-approved.
Time to make a move? Let us find the right mortgage for you