4 considerations before buying a second home
Many friends in Otter Tail, Douglas and Becker counties have second homes- even if they are just a few communities away on a nearby lake. If you’ve been thinking about buying a second home, now is a good time. Although mortgage rates are rising, they are still relatively low by historical standards.
Before you start shopping for a home or lake lot, take these four steps into consideration for a smoother process.
- Find an agent who knows the area
The best way to start the search for a second home is to find a real estate agent who is familiar with your desired location. This person could provide you information about neighborhoods, market prices and the pros and cons of particular properties.
Our team measures success through client satisfaction, though it may be reassuring to know we consistently are the top sellers in the region, assisting both buyers and sellers. We will help you evaluate the long-term value of a property, fill you in on price histories and how comparable sales have fared, as well as resale prospects. Factors that tend to help properties hold or increase in value are proximity to lakes and attractions, ease of access and the availability of year-round amenities.
- Factor in additional costs
When a second home is purchased, buyers are often primarily interested in enjoying their property rather than getting a quick return on their investment. However, it is a good idea to think about whether you will rent the home part of the year while you looking at different purchase options.
Whether you ever rent the home or not, you will be away from the property a lot of the time, and it may be smart to consider having a management company check the place in your absence for water leaks, frozen pipes or other problems.
Factor in that insurance for a second home may be more challenging than it is for a primary residence, and a bit more expensive. Renting out the home for part of the year to vacationers is one way to offset these costs.
- Be sure you can afford two mortgages
As for mortgage financing, you have to qualify for a second-home mortgage, which is on top of any mortgage debt on your primary home.
Typically, you will need to make a down payment of at least 10 percent to 20 percent, meet credit standards and debt-to-income requirements, and provide documents for income and asset verification.
If you have a good relationship with the mortgage lender on your primary residence, that might be a good place to start your quest for a second-home mortgage.
If you are thinking of tapping into home equity you have built up on your primary residence to help pay for your second home, keep in mind that if you need that equity for an emergency, you may not be able to access it.
- Consider the tax implications
Take into account the tax implications of your purchase (and they frequently change). Currently, if you use your home as a true second home, you can still get a deduction for mortgage interest and property taxes, just as you do with your first-home mortgage.
Be aware that the Tax Cuts And Jobs Act caps to the mortgage interest deduction at $750,000. So if you already have a $750,000 mortgage and get a loan for a vacation home, you won’t be able to deduct the interest on the second mortgage.
If you rent out your second home, you will have to consider additional tax ramifications, particularly if the rental period extends beyond 14 days a year.
It is a good idea to speak with your tax advisor to know and budget for additional taxes in your new vacation home.
Your ready for that vacation home!
Once you have thought through these four basic steps, you are ready to relax and recreate in a second home. Take a look at our special page dedicated to lakefront properties to get some inspiration!