Lately, buying a second home has become a much more attainable goal for a great many current homeowners. Partly due to the historically low mortgage interest rates I have been writing about, the affordability factor has become less of a barrier. With prices beginning to rise, those who have been considering buying a second home might take this winteras a good time to make their move – or at least to do some serious research.
The first part of that effort should be arithmetical: does buying a second home make financial sense? For most people, buying a second home will entail getting a second mortgage, with the characteristics of that mortgage dependent upon how the home will be used.
For a second home that is strictly that – a property that serves as a personal residence – mortgage rates are usually about the same as for a primary residence. But if the home will also serve to provide rental income, banks will usually consider it an investment property – and call for a bigger down payment and a slightly higher interest rate.
According to Shannon O’Brien of realestate.com, those buying a second home for its income-producing potential can currently expect down payments ranging anywhere from around 25% to 40%. Penciling in accurate up-front capital requirements means taking that -- as well as applicable interest rates -- into account. Since investment property involves offsetting tax implications, talking second home finances over with a trusted accounting professional is also a good idea.
Considering all the factors currently, the real estate climate is definitely encouraging. Especially for those who have been waiting patiently for a chance to take fuller advantage of it, the realm of second home ownership could be worth investigating.
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