Everything To Know About Buying A Second Home

No matter how much you love your current home, you may dream of buying a second home to use as an escape. A second home can make a long work commute easier or serve as a vacation home for part of the year.

Regardless of the reason, buying a house for the second time can be stressful, especially if you go into it uninformed. In this article, you’ll learn the types of questions you must ask yourself to ensure your second home is a wise investment.

Here are some of the most common reasons you might consider buying a second home:

• Secondary residence: A secondary residence is a home you live in for part of the year in addition to your primary residence. For instance, you may own a condo or apartment in a city where you regularly conduct business.
• Vacation home: Some people choose to purchase a vacation home in a city where they vacation regularly. Owning a vacation home can be a more affordable way to travel for extended periods of time.
• Weekend home: A weekend home is similar to a vacation home – it’s a property you own to vacation or relax for short periods of time.
• Buying a home for someone else: You may want to purchase a home for someone else, like an adult child or an aging parent.
• Investment property: An investment property is a house that you purchase as a real estate investment. Some people will buy a home, fix it up and then flip it for a profit. Others purchase it and rent the home out to take advantage of the rental income.

If you’re a current homeowner, then you’re probably familiar with the home buying process. However, buying a second home is a bit different – here are the steps you’ll take.

1. Determine Where To Buy A Second Home

The first step is to determine where you want to live and the type of home you want to buy. You can learn about different neighborhoods by doing a Google search or researching property values.

You want to find a second home with a high resale value, so compare any properties you’re interested in with similar homes that recently sold. Be sure to check the area’s property taxes, crime rate and local school system as all of these factors will impact property values.

2. Get Preapproved

Next, you want to get preapproved for a mortgage since this will help you understand the type of home you can afford. And most sellers won’t accept an offer from buyers without a preapproval letter.

However, qualifying for a mortgage on a second home is more difficult than buying a primary residence. Lenders see second homes as riskier purchases, so you’ll want to have a strong credit history and a down payment of at least 10%.

3. Find An Agent

It’s a good idea to work with a real estate agent to buy a second home, especially if you’re buying in a new market. Working with someone who’s familiar with the market you’re looking to buy in can eliminate a lot of the stress involved in buying a second home.

Plus, the right real estate agent can help you negotiate a fair price with the seller. Look for a local agent who’s experienced in buying homes that are similar to the ones you’re interested in. If you need help finding the right person, check out Rocket Homes^SM for access to our Verified Partner Agents.

4. Tour And House Hunt

MLS listings have become more sophisticated thanks to 3D virtual walkthroughs, and you can learn a lot by browsing houses online. But touring a home in person is the best way to understand what you’re getting from a home purchase.

When you do a walkthrough, you see things that you can’t see in online photos. You get a better sense of the floorplan, how big the rooms are, and the condition of the walls and floors.

You’ll also notice any odors in the home, and how much natural light it has. You can use this house-hunting checklist to see how different homes you’re looking at match up.

5. Close

Once you find the home you want to purchase, your real estate agent will help you make an offer and negotiate the price with the seller. Once your offer is accepted, you’ll get the home inspected and appraised.

From there, you can begin the closing process. You will need to buy homeowners insurance, title insurance and sign all closing paperwork before you can receive the keys to your second home.

A home is one of the biggest financial investments you’ll ever make, so you want to make sure you’re financially prepared to buy a second home. Here are some of the costs you may encounter when buying a house.

Down Payment And Closing Costs

You can purchase a primary residence with a down payment as low as 3%, but you’ll likely need to put more down on a second home. You’ll need a down payment of at least 10%, but some lenders may require closer to 20%. You’ll also need to consider closing costs, which cost between 3% and 6% of the loan amount.

Second Mortgage Payments

You also want to make sure you’re financially prepared to handle two monthly mortgage payments. Your mortgage payment will include the loan principal, property taxes and interest payment.

Maintenance And Upkeep

It’s also important to consider maintenance costs and seasonal upkeep for a second home.  You may want to consider hiring a property manager, especially if you’re buying a vacation home that you’ll only be staying in for small windows of time.

Utilities

You’ll also need to factor in the cost of utilities, like water and electricity. The cost of utilities may be cheaper for a vacation home than an investment property that you rent out for most of the year.

Insurance And HOA Fees

Homeowners insurance is usually more expensive for a second home, and you may need to purchase location-specific insurance you haven’t needed before. For instance, if the home is located in a flood zone, you’ll need to buy flood insurance. You also want to factor any HOA fees into your budget.

Travel Costs

Don’t forget to factor in any travel costs, especially if the home is located in a remote area or is a ways from your primary residence. If you regularly have to pay to travel to your vacation home, these costs can add up over time.

Here are your options when it comes to financing a second home: 

• Jumbo loan: If you’re buying an expensive second home, you may need to take out a jumbo loan. A jumbo loan is a loan that exceeds the maximum amount for a conforming loan.
• Conventional loan: A conventional loan is a loan that isn’t backed by any government agencies. Most people will use a conventional loan to buy a second home.
• Home equity loan: A home equity loan lets you access the equity in your home and put it toward a down payment on your second home.
• Cash-out refinance: If you’ve built up quite a bit of equity in your primary residence, you may be able to do a cash-out refinance to buy a second home. You’ll replace your current mortgage and borrow against the equity in your home to use it as a down payment. However, this means you’ll have to pay for closing costs twice.

Buying a second home is exciting, but there are many things you need to consider first. Make sure you’re financially prepared to buy a second home and take the time to find the right location and property.

The more prepared you are, the easier the home buying experience will be. If you’re ready to get started, you can fill out an application today and take the first step toward buying your second home.