BY ANGIE MIDTBO, MLO THRIVE MORTGAGE
Buying a second home can be an awesome experience for years to come, but financially, I’d like to share some of the things that you might want to think about first.
How much will it cost?
It’s not just the sales price – there are other costs associated with it. Maintenance of the property like gardens, pools and snow removal, factor in 2% of the cost of the home per year for maintenance on a second home. Property taxes. Insurance (which is usually more expensive than for a first home). The experts claim that the expenses are about 20% higher than your primary residence. The Tax Cuts and Jobs Act have changed qualifying deductions so be sure to talk to your accountant before making your purchase. Other cost considerations include utilities and services such as trash removal in areas, especially remote.
Can you afford it?
It’s important to do the numbers. While it may be a fun getaway, take a look at your finances. Do you have 6 months’ worth of mortgage payments socked away to cover your current mortgage and second home mortgage — in case of a job loss or health issue? Are you planning to use equity from your primary residence to fund the purchase or down payment? Consider fractional ownership arrangements with friends or others to reduce costs.
Are you buying it for the right reasons?
Resist the impulse to buy on vacation, make sure you have thought through the purchase before making an offer. How much time will you spend there? Can you drive in under a day or is more travel required? How much vacation time do you have each year? How many times will family members use it? Do the numbers and compare it to the cost of travel, hotel rooms and meals. However, if you are buying it as an investment in an area that is appreciating or you plan to retire there, that’s another story.
What are the long-term plans?
Are you going to have exclusive use of the home, or do you plan to rent it out for part of the year? Be sure to review the rental rules in the area because not all areas allow rentals based on local regulations and the homeowner’s association covenants. Income tax rules and mortgage loans are different for second homes, taxes for rental income vary as well, be sure to ask all these questions with an accountant so you can plan accordingly. Remember rental income is not guaranteed and renters can cause expensive damage to your property and/or possessions.
Can you find hired help?
If the second home is quite a distance from your home and it needs repairs, are there contractors or handymen available to help you out in a pinch? In some more remote areas, help is either hard to find — or more expensive. Also consider a local management company if you plan on renting out the property or letting friends and family use it.
Ask about weather-related conditions.
If located near a river, lake or shoreline, do you need to buy flood insurance? Earthquakes. Hurricanes. Tornadoes, Forest fires. Check the history of weather-related occurrences over the past 10 years because it will also increase the cost of your insurance. Not to mention the downtime to make repairs.
Finally, don’t rush into making a decision. Make sure that you aren’t buying your second home purely based on impulse or emotions. Take your time to find the property you really want. Do the math so you know you can afford it.
And let me know if you need a mortgage to buy that second home.
For further information contact Angie Midtbo, Residential Loan Originator Thrive Mortgage NMLS #1739856 creativelendingsource.com 720-212-0724 o 303-525-0575 cell.