With interest rates still comparatively low and the economy improving in many areas of the country, now may be a great time to start thinking about buying a second home or investment property. While you should consider resale value when buying any property, the top reason for purchasing a second home or investment property is simply the return on investment.
1. Focus on Location, Location, Location
A vacation home or investment property won’t serve any purpose if it’s in a poorly chosen location, no matter how good a “deal” it might be. Consider how easy it is to access the property, especially from major metropolitan areas. The availability of four-season amenities, quality health care and other services is also important.
2. Consider the Maintenance Factor
Remember a second home or investment property is not your primary residence, you’ll be away from the property most of the time. You may need to hire a management company to take care of maintenance and perform periodic checks for water leaks or frozen pipes. If the property is a condominium, a property service may be available. A detached home will have different maintenance requirements than a condo or a townhome.
3. Know Your Financing Options
It’s important to understand the difference between financing a second home and getting a loan for an investment property, because lenders typically charge higher interest rates and require a larger down payment for investment properties. Also:
- The down payment on a second home can be as low as 10% with a conventional loan
- Investment property down payments vary between 15% and 25% depending on the number of units vs. single family dwellings.
Lenders view second homes as “vacation homes” and expect borrowers to live there at least some time during the year. In other words, if the property is rented out continually or offered as a timeshare, it is considered an investment property and not a second home.
The mortgage interest on your second home may be tax deductible, depending on how much time you spend in the property. However, in some states, property taxes are higher on a second home than they are for a primary residence. Consult your tax advisor for information about tax deductions.
Think About the Memories
For many families, second homes are filled with many happy memories. For more information about loan options for second homes, contact ZABE Mortgage Loan Representative.
ZABE Mortgage Group has over 16 years of experience helping clients choose an affordable mortgage. We offer many types of loans:
- A Conventional loan may be a good choice if you have good credit and cash for a down payment
- An FHA loan might be best if you have a less than perfect credit or are seeking a low down payment
- A VA loan offers a low down payment and other special benefits for active military, veterans and eligible spouses
Each loan type is available as a fixed rate or adjustable rate mortgage.
Fixed Rate Mortgages
A fixed rate mortgage locks in your interest rate for the life of your loan.
- The base monthly mortgage payment (principal and interest) will always stay the same (although your taxes and insurance may change)
- If you plan to stay in your home longer than Five Years (5), a fixed rate mortgage may be more affordable than an adjustable rate mortgage
Adjustable Rate Mortgages (ARMs)
With an adjustable rate mortgage, you get a lower interest rate for an initial time period (usually the first 1, 3, 5 or 7 years). After that, your interest rate will reset at the market rate.
- When your ARM resets, your new rate is based on market conditions, not your financial situation; you may end up paying more interest than you would if you had a fixed rate loan
- If you sell your house before your ARM resets, you may end up paying less interest than you would if you had a fixed rate loan
Most ARMs have caps that limit how high the interest rate can go. Make sure you will be able to afford your payment if your interest rate reaches that cap.
You can rely on ZABE Mortgage Group to help you choose a loan that meets your needs. Apply online today!