The financial 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 equity mortgage.

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!