Second Homes: Is it a Good Time to Buy?
Buying a second home, either to use as a vacation home or as an investment, is something that many people consider at some point in their lives. Once you own your first home, you may be overwhelmed by the joys of homeownership and having just one place to call your own is often enough. Don’t just rush into buying a second home without looking at the various factors. Making sure it is a good time to buy a second home is just as important, if not more important, as it was to make sure you were ready to buy your first house. So, what should you consider when you decide whether it is a good time to make the purchase?
Consider Your Finances
The first and most important consideration is whether you are in the right financial position to buy a second house. No matter how great the market is or how good of a time it seems based on housing prices or mortgage rates, buying a second home is not a good idea unless you are financially ready for it.
To determine if you are, think about:
- Do you have a down payment to put down? If you don’t have enough cash saved, are you planning on tapping into the equity on your existing house? While this can free up the money you need, it’s also is a risky strategy because it involves you putting your house at risk. Your best bet is to wait until you save up at least 20 percent of the cost of your second home before you buy. In a declining market, you may need to put down even more money since the credit market may be tighter.
- Can your budget sustain two payments? You’ll have not just two mortgage payments, but also two sets of property taxes, two sets of utilities, and the costs of upkeep on two homes. While you may plan to rent out your second home to gain some of the cost back, what will happen if you don’t find renters or if the renters don’t pay as promised? Are you financially (and emotionally) ready to deal with the consequences of that happening?
If you aren’t fully financially ready to make the commitment to buying a second house, now is not the time to do so.
What Is the Market Like?
The other key to knowing whether it is a good time to buy a second home is to think about what the market is like. This means both the real estate market and the mortgage market.
- Check current mortgage rates using a website like BankRate.com. The newspaper and the financial news should also let you know whether mortgage rates are high or low at any given time. For example, in mid-2010, mortgage rates were at record low rates, rates that haven’t been seen since the days when Eisenhower was President, and so it could be a great time to buy.
- Check the real estate market. You don’t want to buy at the height of a housing bubble or your property values could end up falling and your house could end up being worth less than what you bought it for.
You also need to be aware that when you are qualifying for a mortgage, your home must not be more than 100 miles away from your existing house, or it will be considered by the bank to be a rental property.
Understanding the Rules
Provided the market is good and you are financially ready, you can jump in with both feet and start looking for a second home. Just make sure you are really prepared for the hassle of dual-home ownership and that you make a wise decision and think with both your head and your heart when buying your new abode.
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