Are You Ready to Buy a Second Home?

If you want to buy a second home, you will first need to determine if you are ready for it financially. Purchasing a second home is a big financial step and not one everyone can afford. Here are a few things to consider to determine whether you are ready to buy a second home.

Different Requirements

You need to understand that buying a second home is not quite as easy as purchasing a primary residence. Many lenders make it very simple for people to get involved in the real estate market when purchasing a home that they plan on living in. However, if you are in the market for a second home, lenders have different lending criteria that they go by. This means that it will be much more difficult for you to get approved.

Down Payment

You need to determine if you have enough money to make a down payment on a second home. Typically, lenders are going to require a substantial amount of cash for a down payment when dealing with secondary homes. You might be required to come up with 20 or 30 percent in some cases to make a down payment. This eliminates a large part of the market for second homes.

Cash Reserves

Lenders will be very particular when it comes to how much cash you have on hand. Lenders will want to see that you have substantial liquid assets that can help pay the mortgage during hard times. If you have a mortgage on your primary residence, the lender will require you to have enough money to pay for both mortgages for a sustained period of time. Typically, requiring at least six months' worth of expenses for both properties is common. Not many people have that much cash sitting around in a savings account. Therefore, this requirement will also eliminate many people who wish to purchase a second home.

Paying Cash

Although it might seem surprising, many people use cash to purchase secondary homes. If you have enough cash to pay for a secondary home, it may be in your best interest to do so. By paying with cash, you will often be able to get a significant discount on your vacation home. For example, certain developers that are trying to sell condominiums in vacation destinations may be able to offer an incentive to those that are willing to pay cash. If you are dealing with a market that has an abundance of supply, you can often find great deals on vacation homes.

Extra Costs

When purchasing a second home, many people fail to consider all of the different cost factors that may be involved. There are many hidden costs in owning a second home. For example, you will have to have enough money to pay for the travel costs between your primary and secondary residences. If you are going to rent out the home when you are not there, you might be faced with additional maintenance or management costs.

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