decisions you will need to make are as important as the decisions
you will have to make in deciding where and which home to purchase.
It is very important that you seriously consider the financial and
tax ramifications of purchasing a second home, before you actually
sign a contract for purchase.
It goes without saying that owning a second home implies you believe
you have additional disposable income available. Looking honestly
at your budget – do you think you have the additional money
to pay the mortgage and expenses of owning a second home? Have you
considered what sources you will use for the downpayment and monthly
expenses for the vacation home? Answering these questions now will
help to ease the stress of considering the issues when you are actually
considering a specific property for purchase.
Availability of Second Home Loans
There is definitely plenty of mortgage money available in the current
economic climate, and second home loans are no exception. There
may have never been a better time to get a mortgage loan than right
now – interest rates are low, and lenders are competing vigorously
for consumer business.
That having been said, second home loans can be slightly less attractive
than primary residence home loans. For example, mortgage lenders
may scrutinize second home loan applications more diligently than
they would for primary home loans. Additionally, the rates and points
may be one-quarter to one-half point higher than a comparable loan
for your primary residence. You may also find yourself being asked
for a higher down payment. Lenders tend to be a little more conservative
when making second home loans, but they are certainly available.
One way for coming up with the downpayment for your second home
purchase is with a home equity loan on your primary residence. While
the rates on these lines of credit can be higher than that charged
on a first mortgage, they can be useful to fill a gap. There are
tax reasons for limiting the amount you borrow in this way, since
the limit on tax deductions for home-equity interest is a $100,000
While we are discussing taxes, remember to factor in the tax benefits
of financing your second home. Mortgage interest is generally deductible
on both primary and secondary homes.
Finally, be mindful of the complications if you decide to purchase
your second home in a foreign country. Often these properties require
larger down payments, higher rates, and shorter loan periods.
If you would like the names of financial institutions that offer
mortgage loans for second homes, please call or email us, and we
will be happy to supply you with lenders!