Dreaming of a second home? Make it a reality
Having a second home is a dream for many Americans, but for most, it may seem to be a financial stretch, if not an impossibility. Yet people are finding ways. According to Statista, more than 10 million U.S. residents own a second home.
A common misperception is that second homes are strictly for the wealthy. But the National Association of Realtors’ NAR 2017 Investment and Vacation Home Buyers Survey shows this is not true. The median household income for people who purchased vacation properties in 2016 was under $90,000. In fact, 10 percent of buyers came from households earning under $45,000 per year.
Careful planning puts second homes within reach
The simplest way to obtain a second home to use for vacations or as a retreat is to put money aside on a regular schedule and wait until your first home mortgage is paid off. When you demonstrate your creditworthiness by responsibly repaying a first home loan, the likelihood a lender will approve a mortgage for a second purchase increases significantly.
Having an active first mortgage doesn’t preclude purchasing a second property, provided you have built up significant equity in your primary residence and have a good credit record. Often, a family’s household income rises significantly over the years they live in a home. As time passes, they are better able to continue paying down the first mortgage while taking on the expenses associated with a second home.
Simple rules for buying
If you are hoping to acquire a second home, do the math and make certain it’s a purchase you can afford. Don’t commit to buy until you can make a down payment that doesn’t empty your bank account. Set a budget you know you can live with and stick to it.
Keep in mind that the purchase price isn’t the only consideration. You’ll have a second set of taxes, insurance, maintenance, utility bills, etc.
Some second homebuyers have found ways to clear financial hurdles
According the NAR survey, the five most popular locations for vacation properties are, in order: beaches, lakes, country, mountains and ranches.
An area that is a popular tourist destination may offer an opportunity to purchase a property, not just for the buyer’s use, but as an investment that can generate rental income during those times when the home might otherwise be unoccupied.
Depending on when you want to use your vacation home, you may be able to offset part, if not all, of the ownership costs. In popular locations such as beaches, six months of peak season rental income may equal or exceed an entire year’s worth of ownership costs.
Alternatives to consider
You may believe that owning a second home is just too much of a financial burden. You may not want the additional responsibilities. Perhaps you have no interest in being a landlord.
If any or all of those scenarios are holding you back, think about how often you would use a second home. Then do the math on what it would cost to rent a property for the same length of time. Consider how many years you might use a vacation home. The numbers may show being a tenant over the long term is less expensive.
If you really love a particular place, and want to continue visiting every year for a specified time period, an owner-tenant relationship could be a good option. Such arrangements can be mutually beneficial. The owner, knowing he or she is guaranteed a paying tenant for particular weeks or months every year, may be willing to offer lower rates than might be charged to one-time visitors. At the same time, the tenant enjoys the comfort of returning to a familiar “home” each year without the hassle and expense of ownership.
If you’re still itching to own a piece of your personal paradise, timeshare properties may be the answer. They aren’t right for everyone, but timeshares offer a way to obtain partial (interval) ownership in a vacation property without a huge cash outlay. With a timeshare you have certain weeks in a year where you may occupy a home or condominium.
Timeshare agreements also offer the ability, for a fee, to use your weeks at other properties in a broad diversity of locations. One year you might live at the beach for a couple of weeks, the next you might occupy a place next to a mountain stream.
If you’re interested in a timeshare, check out the resale market. Prices can be as much as 70 percent lower than purchasing from a developer.
Exploring options for a vacation property? LightStream may be able to provide funding to help!