5 Things You Must Known Before Buying a 2nd Home

Apr 11, 2016

Buying a second home can be an exciting experience, whether you are in the market for a vacation destination or a rental income property. However, you’ll want to be fully prepared before you start your search in order to protect your peace of mind.


In order to get a loan for a second home, you’ll need to be in a good financial situation. It is recommended that you have about six months worth of payments on both homes before applying. You should also expect to pay a higher down payment for your second home than you did your first, at least 30 percent. Your debt, including mortgages, credit card debt, car loans, and student loans, shouldn’t exceed a 36 to 42 percent ratio to your income. If you plan on renting out your second home, mention this to your lender, as it lowers the risk.

Take property tax, and if you are renting, income tax, into consideration. Taxes differ by location, but looking into the details before purchasing can set you up for success in the the long run. It could end up being more beneficial to purchase a house just outside of the area you’re interested in.

You will probably be paying a higher interest rate on top of taxes and insurance. You will also have to consider that you may end up doubling your maintenance costs: two lawns to take care of, two roofs to keep up, two entire sets of appliances inside of the homes to maintain. If you aren’t able to travel to your second property often, you’ll have to factor in the cost of paying someone else to maintain it.

Know your location. You’ll want to be familiar with weather patterns, traffic, and desirable locations in the area. You should also investigate comparable homes to ensure your property is desirable.

Jon Terry, founder of Alaris Properties, encourages his clients to consider the following questions:

1. What are your goals? Cash flow, personal enjoyment, both or something else?
2. Do you plan to use it personally, rent it, or a combination?
3. How do you intend to pay for the second home? Do you need a loan? Will you being paying cash? We can help clients by introducing them to mortgage brokers and bankers to consider all the options.
Clients who are currently enjoying their primary home in the mountains decide to purchase a condo or apartment in downtown Denver. They will save money on hotels and restaurants, as well as “enjoy additional market appreciation, they will enjoy some rental income when they are not using the condo,” said Terry.
Some of our clients have considered purchasing timeshares. We encourage a lot of education prior to a client buying a timeshare. There is a big market and hype around purchasing a timeshare. One loses flexibility and can incur a lot of maintenance costs. We say, “if you are planning to buy a timeshare, proceed with caution.”

Take the first step to forming a better idea of what your second mortgage payment and interest may look like by visiting Alaris’s mortgage calculator.

At Alaris, we know that “knowledge is key” and we help our clients research to gain comfort in making any decision about purchasing real estate.

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