How to buy a second home

Buying a second home can be a great investment option – for both your wealth and happiness. It can provide additional income and/or can provide you with an escape from everyday life.

There are many of reasons why you might be considering buying a second home. Perhaps you want a vacation home, or you need a commuter home closer to work. You could be looking to invest – either by buying a property that you’ll rent out or flip, or by upgrading or downsizing and moving into the new place in order to rent out the old one. It’s important to know your plans for your second home so that you can make important decisions about the type of property you are looking for.

The first step is to find a realtor to help guide you through the process.  Having the right Real Estate agent working for you can make the whole buying process much easier and more successful. Check out our helpful guide on How To Find a Real Estate Agent as a Buyer here.

You’ll also want to consider the costs of buying a second home and explore the financing options. Even if you intend to rent the property and collect rental income, you want to be sure that you can afford all the costs, considering the possibility that it may remain empty for several months at a time. You’ll need to meet debt-to-income requirements – which refers to the amount of debt you hold compared to the amount of money you make. Most lenders want a DTI of around 43% or less to qualify for a second mortgage. You can work this out quickly but adding up your monthly debts and dividing this figure by your pre-tax monthly income. Often, you’ll need a larger down payment than is required for a primary property, because the chance of default on a second home is greater in the event of any financial hardship. Unfortunately, this also applies to interest rates – which also tend to be higher on mortgages for second homes. You’ll find there are different mortgage options for second homes and investment properties, and you’ll want to discuss this carefully with your realtor and your lender.

There are then many other costs to consider. Homeowners insurance often costs more than on a primary residence. Utilities will need to be paid, and if the home is likely to be empty for long periods of time you may want to invest in a security system. The property will need to be maintained – which can include major seasonal updates as well as basic upkeep. You’ll want to make sure you can cover all these costs even if the property is empty.

Once you’ve carefully considered all the (boring yet necessary) financial implications of owning a second home, you can move on to the fun part – looking for the perfect property! Work closely with your realtor, and keep in mind your primary reason for buying this second home. You’ll have a very different set of ‘must-have’ items depending on what you plan on using the property for. If you’re buying a property purely as an investment, you don’t need to fall in love with the house the same way you would if you wanted to make it a home. You need to think of the practicalities first. However, if you’re buying a holiday home – you might want to be more guided by how you feel, and if you think you’ll be able to make happy memories there. Here are some other articles we think may help with this process:

Everything you need to know about buying a house

How To Buy Real Estate