Should You Make That Second Home Purchase?
Buying a second home may seem like something only wealthy people do, but that’s not always the case. With the right strategy and a good team of realtors on your side, it’s possible to make that second home purchase without breaking the bank. However, doing so may not be for everybody even if they have the money for it. Below are 3 ways to tell whether you should buy that extra property or not.
Determining the Practicality of a Second Home Purchase
Ask yourself the following three questions before signing the mortgage:
1. Do I Have Adequate Capital?
Purchasing a home is an investment, regardless of whether it’s your first, second, or tenth. Be prepared to spend money on various expenses within the first few months of buying the property, but don’t expect those extra expenses to go away. Not only will banks be hesitant about giving you a second mortgage (thereby potentially making your payments/interest higher), but your intended uses of the home also determine how much capital you’ll need to support the venture.
TIP: Have plenty of surplus money in reserves (about 6 months-worth of payments) to show the lender before applying for your loan.
2. What Does My Debt Profile Look Like?
Creditors don’t want to approve you for a second home purchase if you owe too much money to other lenders. Moreover, debt makes it difficult to maintain payments and make necessary repairs to the property. Luckily, the right mortgage broker can help you secure a second home even if you’re credit isn’t perfect and despite having significant debts.
TIP: Get your debt-to-income and credit utilization ratios down to about 20-30% if you can.
3. What Am I Using This Property For?
Your intentions for this second home purchase may determine the success you have as a dual homeowner. If you’re buying it for pleasure:
•Use it often to make it feel like home.
•Don’t forget to pay the mortgage and insurance premiums when you’re staying at the other house.
•Make room in the budget for off-season maintenance (hedge trimming, weed eating, mowing, general repairs, etc.). If you’re buying it as a profit generator, however:
•Remember that buyers and renters may take a while to show up (or they might not show up at all). That means you’ll have to shoulder the burden until it sells or rents.
•Keep in mind that your mortgage broker can only do so much in terms of negotiating price, closing costs and other initial expenses. You may end up paying more than you bargained for.
•There may be a few repairs that need done before you can legally sell or rent the property.
TIP: Have each property thoroughly inspected before you purchase it.
To Sum It All Up
Just because you have BIG dreams to have a second home doesn’t mean things will end up that way. However, buying a secondary property can be rewarding if you do it right. Work with a good team of mortgage brokers to ensure you get the most bang for your buck.