Buying A Second Home: How And Where To Buy
Katie Ziraldo12-Minute Read
January 12, 2022
Do you often find yourself browsing real estate listings on the internet? Do you make a habit of looking at property prices every time you’re on vacation? No matter how much you may love your primary residence, it can be tempting to consider what life would be like elsewhere.
You may dream of buying a second home to escape the chaos of your day-to-day life or even to gain passive income. But whatever your motivations are, it can be stressful to start the process without the necessary information. In this article, you’ll learn the types of questions you must ask yourself to ensure your second home is a wise investment.
Why Homeowners Buy Second Homes
Whether you’re looking for a better way to enjoy the destinations you love or searching for a new source of income to reach your financial goals, there are many reasons a homeowner might choose to buy a second home, including but not limited to:
- Using it as a vacation home: If you want larger, more affordable accommodations to enjoy in your favorite getaway destination, having a designated vacation home can be appealing.
- Diversify with a rental investment: If you want to own a home you can rent out in order to gain passive income, purchasing an investment property may make sense as a way to diversify your investments.
- Buying a home for a family member: Some homeowners buy a second home for a family member to occupy. This might be a good option if you’re looking to keep your elderly parents close by, but don’t have room for them in your primary home.
How To Buy A Second Home
As an experienced homeowner, you may think you’re well versed in the process of buying a home. But it’s important to remember that purchasing a second home may be more challenging than purchasing your first one for several reasons, so let’s take a look at the steps you need to take.
Research And Visit The Area
Deciding where you should live can be a long process, but these days, a quick Google search can tell you a lot about a neighborhood. Look up current property values and how they’ve changed over time. Find out how many homes are on the market and for how long. You want to make sure the resale value of your second home will be high, so compare any property you’re interested in with similar homes that have recently sold. Researching the local school system is also useful, as homes located near strong public schools tend to hold their value. Be sure to also check the area’s property taxes and crime rates.
But just as it’s a mistake to buy a home sight unseen, purchasing real estate in an area you haven’t spent much time in is a bad idea. Before you decide to purchase property, test out the area. Consider renting a home near where you’d like to buy so you can see what it would be like to live there and interview the locals while you’re in the area. Ask them what they like about the neighborhood and inquire about any problems they face living there.
Consider Your Costs
As you know from purchasing your first home, investing in real estate is a significant financial undertaking. Before you take any other steps, you need to determine if you can actually afford to take on another property. In addition to the actual cost of the home, consider the following costs that you may not have encountered when buying your first home:
- Insurance: Homeowners insurance typically costs more for a second home, and you may also need location specific insurance you haven’t needed in the past. For example, vacation homes in a flood zone will require flood insurance.
- Rental maintenance: If you’re buying an investment property, you’ll be responsible for all the costs associated with maintaining the property, including paying for all repairs and damages. And if you don’t live near the property, you’ll also need to budget for hiring a property manager or management company.
- Travel: Don’t forget the costs associated with actually traveling to the second home. Especially if the home is in a remote area, or if you’re paying for several family members to travel, these costs can add up quickly overtime.
- Taxes: The costs associated with property taxes will vary depending on how the property is classified and where it is located.
- Homeowners association fees: Depending on the type of property, you may also be required to pay HOA fees and upkeep the property to HOA standards even when the home is vacant.
Shop For Mortgages And Get Preapproved
Getting a mortgage for a second home is a slightly more selective process than it is with a principal residence. You’ll need to prove you’re a trustworthy borrower and have a strong credit profile to qualify. You also won’t be able to pay less than 10% of the purchase price for your down payment, and you may even be required to put down a full 20%.
With stricter requirements, getting a mortgage preapproval before you begin home shopping is more important than ever. Getting preapproved early will give you a better understanding of how much you can afford so you can avoid biting off more than you can chew.
Enlist The Help Of A Real Estate Agent
Once you’ve identified the areas you want to consider for your second home, it’s time to enlist the help of a real estate agent. The professionals will know more about the local market than you can determine on your own and can eliminate the stress involved in the home buying process.
Hiring a real estate agent will help you find the right property and negotiate the right price. Plus, an experienced agent can teach you about the tax implications of buying a second home and let you know whether there are any limitations regarding renting out the property.
The agent you work with should be local and have experience buying homes that are similar to the ones you’re interested in. If you need help finding a good agent, check out Rocket Homes Real Estate, LLC. With its network of highly rated partner agents across the nation, Rocket HomesSM works with buyers to help them find a real estate agent who best meets their needs.
Find And Close On The Property
Your real estate agent will work with you to find homes that fit your budget and criteria – but remember the more specific your preferences are, the longer it may take to find the right fit. Once you find a home you want to buy, your agent will help you make an offer and negotiate as needed.
After your offer is accepted, the closing process can begin. As of June 2021, the average time to close on a home loan was 51 days, according to Ellie Mae, a data firm that processes mortgage applications. During closing, the lender will require a home inspection, appraisal and title search. You will need to buy homeowners insurance, title insurance and sign all closing paperwork before you can receive the keys to your second home.
Where To Buy Your Second Home
Choosing where to buy your second home is a highly personal decision. No one can tell you the best place to buy a second home because it ultimately depends on your individual desires and goals. City dwellers often look for houses on large lots that provide a break from their cramped environments, while suburbanites tend to prefer apartments in urban areas that boast many cultural offerings. Those living in cold weather climates commonly seek beach or lake houses, while people accustomed to warmer weather pursue ski chalets.
Although there is no one-size-fits-all answer, there are questions that you can ask yourself to help with the decision. Consider your goals as they relate to your stage of life, income, current location and interests. Determine what problem you wish to solve by buying additional property. By asking yourself the right questions, you’ll find it far easier to pinpoint the ideal location for your second home.
Typically, people buy second vacation homes to satisfy one of three motives: vacation getaways, weekend homes and investment properties.
When people purchase vacation getaways, they look for places that are far away from their primary residence. The best vacation homes are in environments that look and feel very different from your everyday surroundings. The ideal locations are the ones that make you feel either most alive or most relaxed.
If you think you may be in the market for a vacation getaway, ask yourself the following questions. What types of holidays do you most enjoy? Where do you find yourself returning year after year? How much time do you wish to spend there each year? Who will maintain your vacation home when you’re not around?
Buying a vacation home comes with more risks than the other types of second homes because of the distance, which is why you need to make sure that you’re keeping your impulses in check. Just because you went on one great vacation, doesn’t mean you should buy property in that location.
If a vacation home is out of your price range or not convenient enough to warrant the purchase of a second property, a weekend home may be just the thing for you. Weekend homes are for individuals who want an escape from their everyday lives but don’t want to travel too far for it. The best locations for weekend getaways are ones that afford residents the ability to decompress, engage in new pursuits and enjoy different scenery.
When deciding to buy a weekend home, consider these questions. What areas are near your primary residence? How close should you be to your primary residence? How often will you use your weekend home? What will your weekend home provide that your primary residence does not?
You should only buy a weekend home if you’ll actually use it, so consider how you currently spend your weekends. Weekend homes are only advantageous for those who stay in them regularly. If you envision using the home every now and then, renting may be appropriate.
There are those who choose to buy a second home because they want to invest their money in real estate. Purchasing an additional property can enable you to rent it out and gain a passive income. The best investment properties tend to be highly populated areas with strong growth potential. However, they are also close enough to your primary residence to make them easy to maintain between renters.
If you want to purchase a rental property, there are several questions you must answer. How much do you know about real estate? Will you manage and advertise the property yourself? Will you hire someone else to manage the property instead? What areas near you have a strong rental market? Are property values in the area appreciating?
The idea of getting your money to work for you is highly alluring, but you need to be savvy. Without a clear understanding of the market and operations side of real estate, you can end up losing farm ore money than you gain. However, if you decide you’re prepared for such an undertaking, you’ll find that you can create a substantial nest egg for retirement.
Other Considerations Before You Buy
Anytime you purchase property, there’s a lot you need to consider – and buying a second home is no exception.
Increasing Your Responsibilities
As a homeowner, you have certain practical and financial responsibilities. When you purchase a second property, those responsibilities inherently double. If you have the free time and money to devote to your new property then this may not be an issue, but it’s incredibly important to consider how the increase in homeowner responsibilities will impact your daily life.
Sticking To One Travel Destination
When you buy a vacation home, it’s understandable to want to make the most of your investment by spending as much time in it as possible. But remember that having a devoted property for vacations may actually limit the places you get to visit.
If you’re looking for a home away from home that you can enjoy again and again, a vacation property is probably a good option. But if you’re the type who loves to visit new places with brand-new experiences, returning to the same location may lose its appeal overtime.
Buying A Second Home For A Primary Residence
If you think changing your primary residence is as simple as moving your belongings into your second home, think again. With numerous tax advantages offered to primary properties, the IRS is working harder than ever to ensure taxpayers aren’t claiming a primary residence fraudulently. This means you’ll need to think ahead about how you plan to use your second home, as converting properties can be both complicated and expensive.
The Bottom Line: Is A Second Home Right For You?
Buying a second home can be an exciting new venture, but it’s crucial that you remain levelheaded throughout the process. Impulse purchases usually make for excruciating headaches, so instead of jumping in, take the time to determine your goals, research your desired location and weigh your finances. The more prepared you are, the easier the home buying experience will be.
When you’re ready to buy a second home, start the approval process with Rocket Mortgage®.