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By Alliant Credit Union
If you’ve been dreaming of buying a second home, now could be the perfect time, thanks to modest interest rates. But before you can relax in the luxury of a new home-away-from-home, you first have to find – and finance – the place.
Here are a few helpful hints to remember:
When searching for a second home, hire someone who knows the ins and outs of the real estate market. Find a licensed real estate agent who is very familiar with the area in which you’re looking to buy your vacation home. The right agent should know a lot about the neighborhood surrounding your perfect home, such as current home price trends, crime statistics and the average rental rate (in case you want to rent your home when you’re not there).
While you might have the impulse to close on a home quickly with the current low interest rates, step back and ask yourself how the purchase might impact your long-term financial goals. For example, will the home be used for weekend getaways or once-a-year vacations? If you won’t be using it regularly, do you want to rent the property when you’re not using it? Will you be sharing your second home with family and friends as a way to cut costs?
Insurance and maintenance costs can quickly add up when you purchase a second home. For example, if you’re buying a vacation home by the coast, it’s important to consider flood insurance, which can be pricey. Flood insurance on a home located in a high-flood risk area – an area FEMA has determined has at least a one-in-four chance of flood damage over the course of a 30-year mortgage – can cost well over $700 a year.
On the other hand, if you’re looking for a vacation home in a remote area, insurance companies can be hesitant to insure your home because it might not receive regular maintenance.
To cover your costs no matter where you buy, a good rule of thumb is to set aside 2% of the home’s value, per year, for upkeep and repairs.
When shopping for a mortgage, consider the total cost of any fees, the down payment requirements and the available terms. If you’re buying a vacation home, you may not need a 30-year mortgage, but you also might appreciate the lower monthly payments. Be sure to ask about the interest rate on second homes, and whether you can rent out the home. Ask the right questions to ensure you get the mortgage that fits your needs.
Learn more about Alliant mortgages, HELOCs and Home Equity Loans