Buying a Second Home

Second-home purchases have hit an all-time high according to the National Association of REALTORS®. Here are a few practical tips to help you make a good decision when buying a second home:

Needs and wants What’s good for your primary residence also applies to your second home – proximity to amenities and necessities, adequate space, solid construction, whether or not you like the community. Also consider how long you will own the property. Will it still fit your needs several years down the road?

Financing While it’s not inevitable, you should be prepared to make a larger down payment and pay a higher interest rate than you would for a primary residence. A second home carries greater risk for your mortgage lender, since you are more likely to default on a second home if you hit hard times. You may be able to keep your costs down by financing a portion of the second property with a home equity loan on your primary home. Home equity loans often have lower interest rates than conventional mortgages.

Home inspection A thorough inspection by a qualified professional is important before purchasing any real estate. Termites, carpenter ants, rodents, mildew, leaky roofs, inadequate septic systems and burst pipes from winter freezes are major concerns in some vacation areas.

Security, maintenance and insurance If your second home will sit empty for significant periods of time, hire a caretaker or recruit a neighbor to watch over the house and handle routine maintenance tasks. A tidy lawn, an empty mailbox and light timers can create a lived-in illusion to help keep interlopers away. Invest in an alarm system and monitoring.

Your homeowner’s insurance premiums will likely be higher, particularly if you rent the property out or if it is far away from fire hydrants and fire stations.

Tax issues You are likely to lose mortgage-interest deductions and may have to pay taxes on rental income if you rent out the property for more than two weeks a year. However, some of your maintenance costs may qualify as business expenses. Consult a professional tax advisor to find out how tax rules apply to your particular situation.