6 Things To Know When Buying a Second Home
If you’re considering the purchase of a second home or vacation home, congratulations! We’re excited for you. Here are some essential tips for second home buyers.
The bank assumes you won’t rent the second home.
If you’re planning to rent out your second home at all, know that the bank won’t account for that potential income when you apply for your mortgage.
The bank will assess the current state and future prospects of your income to determine if you can pay the mortgage, without taking potential renters into account.
You can’t have any other second homes in the area.
Otherwise, the bank thinks you’re buying properties to rent rather than to live in and will thus charge you a higher rate on your mortgage.
At the beach? Remember flood insurance.
Flood insurance costs can be significant on the coast, and you should factor that into your buying decision.
In the mountains? You may have a unique challenge.
There are a number of unique properties in the mountains—think of a log cabin—for which few comparable properties exist.
Without comps, it can be more difficult to accurately appraise your property.
You can write off the interest on a second home’s mortgage.
According to Kiplinger, “[y]ou can write off 100% of the interest you pay on up to $1.1 million of debt secured by your first and second homes that was used to acquire or improve the properties. (That’s a total of $1.1 million of debt, not $1.1 million on each home.)”
Always be sure to talk with your tax professional before making a purchase.
The best reason to buy a second home is because you actually want to live in it as a second home.
Flipping a home could be a challenge in the current economic environment. If you tell the bank you want to rent the home at all, you’ll be charged a higher rate. If you rent your second home after you buy it, you could face a steeper rate if you refinance.