Buying a second home can be an unsettling thought if you are not prepared correctly. You will need to make sure that you are in a place to invest in a second home. MCS Mortgage Services has many options that could fit like a second home or a vacation home. Just like your primary residence, owning a second home can provide you with some tax benefits you may not have been aware of, according to realtor.com. If buying a second home puts you over the $1 million debt threshold, you may be able to write off all of your interest on your loan payments. Homeowners can deduct up to $10,000 total of property taxes per year on federal income taxes, including taxes on a second home. If you don’t rent out your second home, it’s taxed much like a primary residence, with mortgage interest and property taxes deductible. Along with the tax benefits of having a second home, there are many more to cover. It is a wise investment to purchase a second and in this article, we will go over the multitude of benefits as well as facts for purchasing a second home.
Benefits of having a second home
Investing in a Second Home
If you have a lower credit score or higher debt–to–income ratio, your mortgage lender may require at least 20% down for a second home. A down payment of 25% or higher can make it easier to qualify for a conventional loan. If you don’t have a lot of cash on hand, you may be able to borrow your down payment. On a second home, however, you will likely need to put down at least 10%. Because a second mortgage generally adds more financial pressure for a homebuyer, lenders typically look for a slightly higher credit score on a second mortgage. Your debt-to-income ratio is an important financial measure when determining how much a second home you can afford. Simply put, your debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt (total monthly debt payments divided by gross monthly income). To qualify for a conventional loan on a second home, you will typically need to meet higher credit score standards of 725 or even 750, depending on the lender. Your monthly debt-to-income ratio needs to be strong, particularly if you are attempting to limit your down payment to 20%.
How To Prepare for a Second Home
- Resist the urge to impulse buy.
- Evaluate your needs and long-term goals.
- Get to know the area before buying.
- Hire a local real estate agent.
- Decide what type of home is right for you.
- Shop around for a mortgage.
- Calculate additional expenses.
- Consider fractional ownership to cut down on costs.
Another added benefit to purchasing your second home is that you can turn this into an investment. For example, if you have purchased this home in the mountains, and you reside at the beach you can turn your beach home into a rental and vice versa. You must consider the terms of your existing mortgage before converting a second home to a rental property. Lenders usually require lower down payments and offer interest rates lower than they would for an investment property. If you’re planning to periodically rent out your second home, your property can still qualify as a “second home” rather than an “investment property,” even if rental income is detected. Second-home mortgage rates are lower than those for rental investment properties. Some mortgage lenders will permit you to rent out your home with your existing rate and terms. However, some may charge a fee, make you wait a certain amount of time, or require you to refinance.
Second homes give people the chance to live another lifestyle, in another part of the country or even outside the U.S. For some, it’s appealing enough to get another mortgage or invest a substantial amount of savings to buy one. If you’re pining for a home away from home, you’re not alone.
Ways to Help Your Kids Live Happily in Two Houses
- Living happily in two houses means feeling comfortable in both homes.
- Give your children their own space in each house.
- Have some duplicate items in both houses.
- Maintain a routine in each house.
- Stay positive.
- Keep transitions times as simple and smooth as possible.
MCS Mortgage Services; Invest in your Second Home
MCS Mortgage Services has many finance options that can help you lock in your second home. Serving Maryland and Virginia, if you are looking to invest in your second home contact MCS Mortgage Services today to see how we can help you, we look forward to hearing from you.