How to Afford a Second Home

Is summer vacation just not long enough? Do you wish you could afford a vacation home where you could relax on weekends and holidays? A second home might be more within reach than you realize. Use these tips to help you strategize how to afford a second home.

  1. First, add up the costs. Not all vacation homes are expensive. The lodging doesn’t have to be five star in order to enjoy your time off. You might be able to find a small cabin that is relatively affordable and provides you with the second home that you desire. When you are deciding whether you can afford to purchase a second home, be sure to consider mortgage interest, property taxes, homeowners’ insurance, and homeowners’ association fees when you are adding up the cost. Also, prepare to set aside funds for repairs, maintenance, and utilities.
  2. Can you pay cash? If you can manage to save up enough money, cash is the ideal way to pay for a second home. This eliminates mortgage interest, which saves you money long-term, and simplifies the purchase process. However, for many buyers, this isn’t an option.
  3. Do you have enough equity in your primary residence to take out a home equity loan to purchase your second home? If you have lived in your current home for a long time, this might be a viable solution. Unfortunately, declining home values over the last several years have significantly impacted the ability of many homeowners to access their equity.
  4. A conventional loan is the most reasonable financing option for many buyers. The process for obtaining a conventional loan is slightly different when it comes to a second home. The minimum down payment on a mortgage for a second home is at least 20%, with some lenders requiring as much as 35% down. The interest rate on a second home will be higher, and you will be held to higher credit score requirements than you would for a primary residence. You will also need to be able to show significant cash reserves in order to prove that you can handle the expenses involved in maintaining two homes.
  5. If you intend to rent out your second home part of the time in order to earn extra income, you may be able to include potential rent as income towards loan qualification. Requirements vary based upon the particular lender, so check into the regulations of your lender. If you can show that, historically, the home has been consistently rented, that may help to give you the income you need to qualify to purchase.
  6. If you dream of owning a vacation home, start saving now. The more cash you have available for a down payment, the easier it will be to obtain financing for a second home. Take a look at the market and see what is available. You may be surprised to find fairly affordable vacation homes, given the state of the real estate market.

If you are interested in looking for a second home, contact Barrie and Area Real Estate. We can answer all your questions about buying or selling real estate in the Ontario area, whether you are looking for your first or fifth home. We want to make buying or selling a home affordable for you, and we offer a variety of commission optionsin order to make that possible. We have the inside track to finding great homes for you before they are even advertised. When you are ready to make owning a second home a reality, call Barrie and Area Real Estate.