Three questions to ask before buying a second home


A vacation home in a tropical setting with a pool and palm trees in the background.

If you have the itch to buy a vacation getaway, here are three questions to help decide if it’s the right choice for you.

Have you ever dreamt of having a second home at your favorite vacation place? There are great rewards in returning to a destination time and again, and that’s why so many people buy second homes. If you’re thinking about buying your own vocational home, here are some things to consider first.

Can you afford a second home?

A budget robust enough to handle a second house payment, property tax bill and insurance premium is not enough. Lenders want your total debt-to-income ratio to be 43% or less; they’ll count mortgages and taxes on both homes as well as other debt like car payments, student loans or other installment payments.

When you calculate the cost of second homeownership, look beyond lender requirements. Include what you’ll spend on monthly utilities, upkeep, furnishings, traveling back and forth, and repairs.

Also, to finance your second home, be prepared to put down 10% to 20% of the purchase price. A 20% down payment will give you access get the best mortgage rates and lets you avoid paying mortgage insurance.

Are you planning to rent it out?

There are three things to keep in mind if you’re planning to rent out your second home to finance it.

First, find out if local laws or homeowners associations limit or prohibit short-term rentals. If there are limitations, does buying the home still make sense for you?

Second, keep in mind that renting your second home will impact your financing options. Lenders will charge more to finance an investment property—typically 0.25 to 0.375 percent higher than rates for a primary or secondary home. You may also need a down payment of 30% for an investment property.

Third, decide if you’ll manage the rentals yourself or hire a management company. If you DIY, is the second home close enough to get there quickly if a problem arises? If you hire a property manager, do you earn enough to make the investment viable after you pay their commission?

What are your long-term goals?

This question is the most personal, and only you and your loved ones can answer it. Is it important to for you to have your own space to gather and relax? Can you realistically travel to your vacation home as often as you desire? If you had to relocate for your job, would the house still make sense? How will the purchase of a second home affect your plans for college tuition, other travel and retirement?

Buying a second home is a long-term commitment that is rewarding for many and creates unforeseen stress for others. Consider your finances, lifestyle and goals. If you decide a second home is right for you, contact a Consumers mortgage loan officer to help you finance the vacation home that makes your dreams come true.

Consumers helps more than 1,000 members finance land, first and second homes, and home improvement projects each year. When you need a mortgage or home equity line of credit, call us at 800.991.2221. We’re here to help you get the home of your dreams!

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