No one can tell you whether you can afford a second home better than yourself. After all, you know your finances, long term financial goals, and capabilities regarding paying the bills. With that being said, some significant factors can be easily overlooked when purchasing a home that you should be aware of before you begin the process. Here are a few things you should take into consideration to help you determine: “can I afford a second home?”
Can I Afford a Second Home?
What Are The Costs?
The first question to answer when answering, “can I afford a second home?” is simply, what will it cost you, both now and in the future? Is buying a second home a good investment? Here are some of the most common costs associated with purchasing a second home that you should factor in before taking the plunge.
Mortgage Payments (Principal & Interest)
Consider what impact adding a monthly mortgage payment will have on your finances. Keep in mind that second homes typically interest rates .25 to .50 points higher than primary mortgages. It helps compare mortgage rates and mortgage lenders, so you know you’re getting the lowest interest rate possible. For instance, direct mortgage lenders offer more advantages when financing a home, like lower closing costs and competitive interest rates.
Down Payment Requirements
Owning a second home is a big deal, not just for you, but also for your mortgage lender. Since it’s not the home you’re more likely to pay the mortgage on first if things go awry, mortgage lenders typically see second homes as a more significant risk. This is why many mortgage lenders require anywhere from ten to twenty percent (or more) down to purchase a second home.
It’s not a bad idea to call around and get homeowners insurance quotes before purchasing a home, especially if you need particular types of insurance, like flood or fire. This will help give you a realistic monthly payment amount when you plug in the numbers into our free mortgage calculator.
Knowing precisely what HOA dues you’re expected to pay, how frequently you’re to pay them and what they cover can help you decide if that location or community fits your financial budget and goals. Here are a few key questions you can ask the management company or real estate agent:
- What do my HOA dues cover? (Maintenance? Landscaping? Security?).
- How often do I pay HOA dues? (Monthly? Quarterly?).
- How often/how much do my HOA dues increase? (Since HOA fees typically increase yearly, ask for a list of HOA fees from the past ten years).
Utilities & Upkeep
Consider the cost of utilities and upkeep when you’re there and when you’re not. Whether it’s located in Florida or Colorado, it’s important that the inside of your second home is set at a temperature that prevents damages caused by mold or frozen pipes. Call the local utility companies to get a quote on average utility costs for that property at various times of the year. If HOA dues don’t cover maintenance, will you hire a landscape or property management company to take care of things in your absence?
Depending on how far away you are from your second home may require you to purchase a home security system or hiring someone to check on things every so often.
How Will I Pay For It?
Paying cash for your second home will save you money in the long run by saving on interest, closing costs and other fees.
Since the purchase of a second home is considered an increased risk for your lender, you’ll likely be required to pay a higher down payment and interest rate. Additionally, second mortgages also require borrowers to have a strong debt-to-income ratio (less than 45%), credit score and cash reserves.
Maybe you’d like to take advantage of low home loan refinance rates and fund your second property with the equity in your first home. Consider using a cash-out refinance to make your purchase or help with down payment requirements for your second home.
No matter what mortgage questions you have, Wyndham Capital is the mortgage company with the answers you’re looking for. Contact one of our expert mortgage loan officers today to learn how you can secure your second home loan entirely online.
Interested in learning more about how Wyndham Capital can help you achieve your home lending goals?