How to Pursue a Second Residency
Many homeowners desire to purchase a second residence. They may want the second residence as a vacation home or a combination vacation home and investment property. The vacation home is called a second residence, and the considerations for buying a second residence would be somewhat different from those when purchasing a primary residence. To pursue buying a second residency, you will want to mirror the strategic process for buying your primary home while recognizing that there are additional tax benefits and responsibilities to owning second residence.
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Instructions
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Determine the purpose of the second residence. Decide whether the second home is solely for vacation use or not. For example, if you are only staying in the second residence 6 months out of the year, then you may want to consider renting it for the other 6 months. It could generate income to pay the mortgage for those additional 6 months.
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Select the location or city of your second home. If you choose a second home that requires a flight, consider those costs to fly back and forth. Further, you may need to hire a management company to landscape the property or to make repairs in your absence. Check the amount of property taxes to be paid in the location that you choose. In some states where there is no state tax, the property taxes are more expensive to offset the lack of state tax.
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Calculate a budget and payment. Property taxes, insurance and carry-back costs should be included in your property budget. Carry-back costs are all costs associated with running the home for the year, such as landscaping, utility, telephone and maintenance costs. For example, if you determine that your maximum monthly payment amount should be $2,500 per month, remember to factor in the remaining expenses, which will give you a true total monthly budget for your second residence.
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Select a lender. Search for a lender that specializes in second-home acquisitions. If you were very happy with the loan for your primary residence, then start with that lender first. There are tax advantages to owning a second home, depending on your purpose for that second home. Further, when buying a second home, down payments are usually more than for a primary residence. For example, most second home purchases require a 20 percent down payment, while you could feasibly receive a lower down payment on a primary residence. This is standard treatment when financing a second home.
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Search for your second home in the city of your choice. Since you are not located in the new city, a real estate agent should be used to give you access to all of the resources necessary when choosing a home. Ask the agent for all of the recent sales in the area, the demographic information and the safety information. Most agents are excellent sources of information and know the areas that they service very well and can help aid in your decision to purchase a particular home.
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Buy your second home.
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Tips & Warnings
Consider using a 15-year amortization on your second residence to pay your second residence off in 15 years versus the traditional 30-year payoff.
If your second residence is in a distant city and you choose not to use a management company, plan on having someone check on the property routinely to make sure that there are no major issues occurring.
References
- Photo Credit dream house image by Cristina Bernhardsen from Fotolia.com
