Purchasing a second home or ‘vacation’ home is very much like buying your primary residence. As far as lending goes, you will supply the exact same documentation as your primary home loan. However, there are a few differences that a buyer should learn if they are searching for a second place in which to live part-time.
Recognize a Lender's Definition of a Second Home
Your lender will want to go through a validation process to officially identify your home as a second home. The first thing that your lender will look at is whether or not your second home is smaller than your primary residence. Your lender will consider not only the size of the home but also the cost. The next thing that the lender will look at is the distance between the primary and the secondary homes. Your two properties should be at least 100 miles away from each other. If you meet these criteria, then your new purchase can be classified as a second home for lending purposes.
For many people, their second home does not meet these requirements. However, the down payment amount for a second home that does not get official second home status from a lender is not that much more than that of a primary home. If your home does get secondary home status for lending purposes, you can expect your required down payment amount to be slightly less. Even without this status, however, your down payment amount will be very reasonable. You can expect your down payment for your second home to be between five to ten percent. As with every mortgage, the more money you can put down, the lower your interest rates and monthly payments will be.
Discuss with Your Lender Your Options
It is important to ask your lender what all of your mortgage options are for your second home purchase. Your lender will want to know what your plans are for the property. If you are going to keep the property for many years, a fixed mortgage will be your best choice. However, if you do not plan to keep the property for a very long time, talk to you lender about an adjustable rate mortgage or a balloon mortgage option. These are good options for people who want to purchase a second home but do not plan on keeping it for a long time. These options offer lower interest rates as well making your monthly payments lower.
Be Knowledgeable When Buying a New Second Home
Many second home mortgages get the same rate as a first home purchase. Some circumstances in a buyer's financial portfolio can affect the mortgage rate. In most cases, the additional rate is only one-eighth of a percent. Rarely will the increase exceed one-fourth of a percent.
A second home is a great investment because all of the interest is tax deductible, just like your primary home's mortgage interest. As long as there is space in your budget for a vacation home, you will be making a great financial choice and have a great new property to enjoy!
Are you looking for a Southern California beach home for your second home? Have a look at our Del Mar real estate or West Carlsbad real estate in San Diego, CA.