Getting a decent vacation home is a dream come true for every buyer. Prospective vacation home buyers may find the mortgage lending process little bit confusing. You will have to plan several steps & make decisions before investing your finances for it.
Consider the below given factors before purchasing the second house for vacation living purpose:
*Affordability – You have to consider whether buying a second house as a vacation home is financially considerable for you or not. It is not only a huge investment , but also a recurring expense which you must pay every month. The expenses may be in form of maintenance,taxes, association fees, lawn care, garbage collection, and other fees . If you plan to let the house for rental, you also need to calculate your profits to cover up the increasing costs. This decision will be profitable for you if your income from the house is than the monthly expenses.
* Type of home & it's location – You need to determine what type of home you require as your vacation house. It is very important to choose the location of the house as the investment will be depending upon it. A home in a badly selected location cannot attract future renters, vacationers & other possibilities. You should rely on market surveys & also your own choice while choosing the type of the house. The deciding factors are cost, location, structure, facilities & others.
*Financing – Generally, most of the people pay the purchase price through a combined way, one part as downpayment & the other through loan financing. Your loan amount will low if you can put down a huge amount for initial down payment. So, you can use your existing home's equity, borrow against your insurance policies, refinance car loans etc for getting cash. Shop around for the best mortgage deal you're getting in the market & check required terms and conditions.
You can use your Individual Retirement Account (IRA) to purchase a vacation house. It is called the Self-Directed IRA. But as per the federal guidelines, if you use it to finance your second home-buying, you will loose the right to live in that house. You also need a custodian to manage your account in this process.
*Un-orthodox financing methods – Another useful source of finance is to borrow from relatives & friends. By this way you can save money which you might be giving to the bank. If you have to pay interest to your relatives, that might be also in much more flexible terms rather than the bank.
Another possible way is to form a partnership & arrange a co-borrower. By this way you can reduce the loan burden from your head.
*Renting – You vacation home can be used for permanent renting or seasonal renting. In both cases, you will perform the duties of a landlord. So, you need to be cautious while picking the candidates for renting. You need to understand the basic requirements of an agreement & leases. You must keep an eye on the management system of your rental home & perform the required repairing/maintenance work time-to-time.
*Tax implications – As a homeowner, you will have to bear the burden of property taxes, & income tax if you are thinking about renting the house. If you plan wisely, you may save thousand of dollars in a year. Sometimes, buying a home in a location which is far from the city might cut-down a major part of the property taxes. According to the services you are getting at the neighborhood, the rate of property taxes may increase significantly.
The more days you will spent in your vacation house as a prime resident, it will trim out the parts of income tax which you might owe as a landlord.
*Care & protection - Protecting your house is a major duty which starts before you buy and continues in the future also. You'll need to hire a professional home inspector prior to purchasing. It will help you get a fair view about the urgent repairs & also calculate the future repairing costs.
You must avail title insurance for the sake of your lender. There might be a situation when problems such as past ownership or debt claims arise after the purchase.
Your lender might ask you to opt for a hazard insurance, it will protect your vacation house against damage from natural disasters like flood, thunder, tornado & others such as burglary, theft, fire etc. The cost of insurance for vacation home is usually higher than your primary home. You will probably need to avail liability insurance for the residents & visitors of the vacation house. It will cover the cost of medical services in case you and the other residents get injured in any accident. Taking these protective steps will save not only your home, but also your finances.