Last Updated on February 12, 2021 by Maggie Sutton
When you think of the average person, you probably don’t expect that they own a second home. If someone owns more than one house, they must have a lot of money, right? That is not necessarily true. Some homeowners have a second house because they’ve bought a new one and haven’t sold the first, yet. Others have the idea to buy one at a low cost, fix it up, sell it, or rent it to someone else.
A third option is to buy a house for vacationing and renting it weekly to help pay for costs when you’re not using it. Either way, there are certain things you need to do to own a second home, and we’re here to help you find out. Keep reading to see what you’ll need to purchase a second home.
Start Saving Extra Money
To purchase a second house, you want to make sure you have enough money to pay both mortgages for at least six months. That will give you enough of a buffer in the event something happens to either your income or to one of your properties. Lenders want to know that you have enough money for both properties so defaulting isn’t an option. You will also most likely have to make a higher down payment on your second house, something around 30 percent of the final purchase price.
Start Working on Your Debt
When you start the process of buying your first home, you begin alleviating your debt before applying for a loan. After the purchase of your home, you should continue to work on paying off car loans, school loans, and credit cards. As with your first home purchase, lenders are going to look at your debt this time around as well, but you’ll also have the debt of your first home on top of everything else. Most lenders want your debt to be less than 42 percent of your income, but they would like it to be closer to 36 percent. If you are planning to create extra income with either one of your houses by renting it out, make sure your lender knows that, as it makes the loan acceptance more likely.
Working with a lender who is familiar with a variety of home loans and saving you money can go a long way in helping you purchasing that second home. Let us connect you to a local Homes for Heroes specialist in your area. They will answer your questions and assist you through the approval process on a home loan while saving you money.
Most lenders want your debt to be less than 42 percent of your income, but they would like it to be closer to 36 percent.
Your Second Mortgage Payment Might Be Higher
Banks see investors as riskier than the average homebuyer and will most likely charge you higher interest rates, making your second mortgage payment higher than your first. Avoid that type of situation by using existing lines of credit or cash financing to buy your investment property.
You’ll be maintaining two homes, meaning you’ll have twice the yard, twice the gutters, and twice the amount of painting, trim, and roofs to replace. Keeping a second home is more than paying mortgage insurance and property taxes. If you are looking at the house as a long-term investment, this is not an issue, as it will pay off later on. Taking the time to fix up your second home will give you more equity in the future.
Fixing a Property Takes Time
If you are buying a second house and have plans to fix it up and rent it out or resell it, you need to be patient. The longer you take on the fixing, the more money you’ll pay on the mortgage, but if done correctly, the property will gain you money later on. Do your best to repair and renovate as quick as possible so that you can get the house either back on the market to sell or to rent. One way to save time on the remodel is to start planning the rebuild before the purchase is final. You can get a head start when it comes to paint colors, flooring, and backsplash tiles, remembering that time is money.
Don’t Consider the Second Home as Guaranteed Income
Renters will not always renew their lease, so make sure you have enough money from other income to carry you and your family. You want to be able to take care of your bills and payments even if the rental house is empty for the time being. Having the extra income is fantastic, but not always guaranteed.
Prepare for Renters
Not everyone knows that rental houses are not their property. People make bad decisions, and all they lose out on is the safety deposit. If a renter spray paints inside the house or tries to flush something weird down the toilet, you have to pay the extra if the damage costs more than the safety deposit. Make sure you have additional funds for similar situations.
Consider Buying a Vacation Home
If you want to buy a second home for vacation, consider renting it out for part of the year to help pay for it. Renting for a week here or there will help pay the mortgage, and you won’t be using it anyway, so you may as well make a profit. Renting it out during the peak season for a few years could help tremendously, and then you’d be able to have it all to yourself. Why not be adventurous and invest in a vacation home abroad? It could be anything from a tiny flat in Paris to one of these new gated residential compounds in Egypt. As long as it is somewhere people like to visit, you will have renters. You are more likely to get renters in a beautiful area, but many times, people just like to get away from their own home for a while to get some peace. You will provide the answer to their problems here. For example, the Outer Beaches of NC are an extremely popular place to rent for all kinds of tourists – many homes are rented through Kees for their stay. You could also make a profit on holiday goers, especially if you are not living there for a while at a time.
If you want to invest in a second home, go for it. Just like with a first home, make sure you do all of the prep work ahead of time, saving you time and money. Do your homework and look at other rentals in the area. Comparing their size and price will help show you what kind of income you can bring in. Once you know what to expect, then you can make the necessary changes to your property, giving you the edge on the competition.
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