Follow these steps to make buying a second home a smooth process.
If you’ve been thinking about buying a second home, there are some vital things to do before you start shopping.
• Find a real-estate agent who is familiar with your desired location. This person could provide you information about neighborhoods, market prices and the pros and cons of particular properties.
With an eye toward the long-term value of a property, the agent could fill you in on price histories and how comparable sales have fared, and resale prospects.
• Factor in additional costs. You should consider that you will be away from the property a lot of the time, which usually entails additional costs, such as having a management company check the place in your absence for water leaks, frozen pipes and other problems.
Getting insurance for a second home may be more challenging than it is for a primary residence. If you are considering a second home on the beach, for example, you’ll need flood insurance, in addition to regular home insurance.
• Be sure you can afford two mortgages. You have to qualify for a second-home mortgage, which is on top of any mortgage debt on your primary home.
Typically, you will need to make a down payment of at least 10 percent, meet credit standards and debt-to-income requirements, and provide documents for income and asset verification.
• Consider the tax implications of your purchase. If you use your home as a true second home, you could get a deduction for mortgage interest and property taxes, just as you do with your first-home mortgage.
Be aware that under the new federal tax law, the cap to the mortgage-interest deduction will be lowered from $1 million to $750,000. So if you already have a $750,000 mortgage and get a loan for a vacation home, you won’t be able to deduct the interest on the second mortgage.
If you rent out your second home, you will have to consider additional tax ramifications, particularly if the rental period extends beyond 14 days a year.