If you are doing well financially, you may be thinking about purchasing an additional property. Owning a second home can bring financial and emotional rewards, but it’s important not to make the decision lightly. Be sure you consider the necessary factors before you commit to another property. In order to afford a second home, you have to plan effectively, save wisely and spend appropriately. Check out the right ways to prepare below.
Become an Attractive Borrower
If you thought it was difficult to get a mortgage for your primary home, you have to really weigh the options of taking a mortgage for your second home. You need to impress lenders even more when it is an additional property. Save lots of cash as you will likely need to make a down payment of at least 20%. You may want to work on improving your credit score. To be a desirable borrower you will have to pay down your debt, because lenders will investigate your prior mortgages, car and student loans and even credit card payments to be sure you can afford this large addition. Before you bid on a home, be sure that you can afford this second home and are a borrower that lenders will feel comfortable giving a mortgage to.
Your credit score will also be incredibly important to making a second home financially possible. You can see two of your credit scores for free and get an action plan for improving them on Credit.com.
Build Up a Home Cash Reserve
Having two homes means double the property taxes, double the furniture, double the maintenance fees and double the responsibilities. Be sure you have an emergency fund specifically earmarked for each home — since each property will have its own surprises and requirements. Aside from having cash saved up, it’s important to speak to your mortgage broker or real estate agent to have whatever insurance policies you need for the home. Essentially, affording the home also means affording more than the home because of all the other costs you may incur.
Strategies to Avoid
When you are thinking about a second home, it’s a good idea to avoid some strategies. It’s important not to over-borrow or you risk falling behind on payments and possibly losing your home and destroying your credit. Also, if you plan to rent out your second home for some or all of the year, it’s important to know the tax implications. Finally, it’s usually not a good idea take equity out of your primary home to obtain a second one. All in all, be sure you are ready financially and emotionally before you make this big decision.
If you decide that your budget, lifestyle and long-term goals can accommodate a second home, you can reap the rewards of your saving habits. This property will incur a slew of new costs but can bring unparalleled experiences. Saving properly should pay off in the end, enabling you the vacation, retirement or investment home you have been working so hard for.
More on Mortgages and Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Search for Your Next Home
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