Buying a Second Home

Many of us dream of a second home. It may on the Jersey Shore, or on a lake, or in another part of the country. The current foreclosure mess has left many properties in desirable parts of the country available for what seems like very cheap prices. If your credit is good and you have enough money to carry two houses, it might be a good time for you to look for that dream house.

If you are looking for a second house as part vacation home, part investment, then you need to check out the local real estate market. Talk to the local real estate agents and find out how far prices have fallen. If you are thinking of renting out your house for part of the year, ask about how easy it is to rent to others and what the typical rental rate is for the size of house that you are looking at. Will the rental income cover the mortgage and taxes or just be a nice extra bit of cash?

Are you looking for a retirement home? In that case, your investigation will have a different focus. You will be concerned with the amenities that may come with the house, such as a pool, and with the amenities that the town or city that it is located in will provide, such as golf, other sports, cultural activities, good hospitals, closeness to an airport, and pleasant year-round climate. You may want to look for a 55+ adult community that provides activities and a clubhouse. You will also be looking for a house that will still be comfortable for you when you don’t want to take care of the lawn or walk up flights of steps every day.

Also think of how long you might want to stay in this house. If you think in terms of 5-10 years, you could be better off just renting. The costs of buying and selling, plus maintenance, make a house an expensive proposition over the short-term. Just think about how much cash you would pull out of your current house if you sold it now. Not that much if you bought it 5 years ago. You might even be taking a loss.

Mortgage loans for second homes are harder to get because the lenders know that you are not living there full-time. You are statistically more likely to default on a mortgage on a second home than on your primary residence. So, you need a very high FICO score and a lot of money in savings.

Just remember from an estate planning standpoint that if you own property in another state that you must probate that property in that state as well as your home state. There are techniques to get around this issue that your estate planning lawyer will know about.