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Saving for a Down Payment for a Second Home? Read This First...

Second homes can be an excellent property investment — but you may be surprised to know that you don’t need a 20% down payment in order to make your vacation home dream a reality. Here are some things to consider when purchasing a second home.
Second homes can be an excellent property investment — but you may be surprised to know that you don’t need a 20% down payment in order to make your vacation home dream a reality. Here are some things to consider when purchasing a second home.

Second homes are a great way to increase your property portfolio. Whether you plan to buy a personal retreat to use as a vacation home or purchase an investment property to rent out, it’s possible to take out a second mortgage — without breaking the bank.

If you’ve been considering a second home, now could be the ideal time to make a move. With mortgage rates still historically low and the economy bolstered by a low unemployment rate, investing in real estate has never been easier.

Ready to start exploring your options? Here are some things to consider when buying a second property.

Forget the 20% Down Payment

Gone are the days when you needed a minimum 20% down payment to finance a second home. According to Fannie Mae guidelines, you can put down a deposit of as little as 10% — as long as the property is classed as a second home.

It is prudent to note that government loans such as FHA and VA options are not offered on second homes.

Vacation Home VS. Investment Property

When you buy a second home, it is crucial to decide what it’s primary use will be.

Are you planning to use it a minimum of 14 days out of the year? Is the property a minimum of 50 miles away from your primary residence? If so, it may fall into the “second home” bracket according to IRS legislation.

Investment properties typically require a larger down payment than vacation homes. You can, however, deduct itemized expenses, such as the utility bills, if you’re receiving an income from renting out the property.

Consider a HELOC

If you’re considering a second property, but aren’t sure about where to find your down payment, a Home Equity Line of Credit (HELOC) may be an option for you.

A HELOC is a loan that allows you to use your primary residence home value as collateral to liquidate equity. Home equity is the difference between the market value of your home and any debts owed.

It’s important to note that HELOC’s are debt secured against your home. If you do not keep up with your repayments, your home could be repossessed.

Consider Other Costs

Second homes require maintenance and upkeep, just like a primary residence does. If you’re considering buying a home a significant distance from your house, it may be wise to hire a property manager.

Other costs to consider include insurance, which tends to be higher for investment properties. If you opt for a vacation home and it is near a body of water, you will also need to consider flood insurance costs.

Get Expert Advice

Navigating a second home real estate deal can be just as tricky, if not trickier than buying your primary residence. This is because the second home increase your debt-to-income ratio even more.

An experienced local real estate agent who understands the market is imperative in ensuring that you get the best deal possible.

The Bottom Line

Buying a second home can be a sensible investment. Real estate offers significant risk-adjusted returns and a passive income stream — not to mention years of enjoyment, especially as a vacation home.

If you’ve been thinking about purchasing a second home but are unsure of the next step to take, seek the advice of an experienced real estate agent. A seasoned agent can not only help you find your perfect property; they can also help evaluate financing options and provide support and guidance throughout the entire home-buying process.

Clever Partner Agents are all top performers in their local market — that’s why Partner Agents in qualifying states offer a Home Buyer Rebate of $1,000 — or up to 1% for properties over $500,000 — of the purchase price of your new property. Work with a Clever Partner Agent to buy your second home for on-demand showings, buyer rebates, and a fantastic agent experience.

 

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Reuven Shechter

Reuven Shechter is the Outreach Coordinator at Clever Real Estate, the free online service that connects you with top real estate agents to help save on commission. He spreads the word about Clever, disseminating studies to journalists and developing relationships with media outlets. Reuven is passionate about investing in real estate and creating lasting success for families. His writing has been featured in Max Real Estate Exposure, Leverage Marketing, and more.

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