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Does homeowners insurance cost more on a second home?
Unfortunately, it usually does. Insurance providers understand that second properties aren’t as secure from theft as a primary residence. For this reason, you’ll wind up having to get an entirely different type of policy that usually has higher monthly premiums.
Along with increased insurance rates, second homeowners also have to deal with maintenance and utility expenses. Even if no one’s living in the home, your neighbors will want you to keep up with the yard.
A lot goes into buying a second property. However, it can be an excellent financial decision with the proper planning and preparation.
What other factors should you consider beforepurchasing a second property? Read on to find out.
1. Buying a Home for a Clear Purpose
First, buying a home should never be an impulse decision. It doesn’t matter if you found your dream vacation rental, and it’s at the best price possible; home buying is not something you should ever rush.
Instead, you’re going to need to evaluate all of your long-term goals and household needs before making any purchasing decision. Get realistic about what type of second property will best suit your financial lifestyle.
If you’re looking for a weekend getaway, the home should be within a day’s drive from your primary residence. Often, we find that instead of purchasing a vacation property, you can get away with using Airbnb services.
Instead of dealing with the stress of having to keep up a second property, you’ll be able to focus on having fun during your vacation! If you’re looking for a second property that can help serve as a retirement spot one day, find out what the healthcare services are like in the area. If the home is near a hospital or fire station, it’ll be easier for you to get low home insurance rates.
2. Are You Looking for an Investment Property?
If you’re looking into getting a second property because you want an investment property, you’ll need to consider how much passive income you’d like to make.
Did you want to make a consistent amount each month by using the home as a rental property? Keep in mind that rental income is never guaranteed. There could be long periods when the property is rented, so prepare for that financially.
Another option would be to flip and resell the house. Flipping and reselling is a beautiful way to generate money, but it does take a lot of work.
If you don’t have the patience and skills to flip quickly, it’s probably not the right choice for you. You also want to consider the different tax implications, such as capital gains tax.
If you sell something for more than what you paid for it, the tax rules will change a bit. For instance, flipping and reselling a home without living in it for 2 years means that you will have to pay the maximum amount of taxes on your profit.
3. Use the Correct Type of Home Loans
You’ll need to do a little bit of shopping around when it comes to finding a loan for your second property. You might qualify for special loan pricing through a VA loan for second home, but you won’t know if you don’t look!
Lender comparison is one of the most important parts of purchasing any property. Many lenders will only require pre-qualification, so you’ll be able to find out what their offers are without running a hard credit report.
Speaking of credit, check your credit score first before you start applying for home loans. Lenders will be wary of anybody who has late payments or tons of debt.
Do whatever you can to clean up your credit, such as removing bad marks and any possible errors. Then you can start applying for the loans that offer the best interest rates.
Try talking with a real estate lawyer to learn more about home loans.
4. Pay with Cash If You Can
If possible, pay for your second house using cash. Use cash to cover all of the expenses associated with the buy, including the closing costs.
By avoiding taking out a loan on a second property, you’ll be able to minimize your risk. Loans are always risky, no matter how great the interest rates are. If you wind up taking out a mortgage, you’ve added an element of uncertainty to your financial standing.
You never know what type of life changes might occur; that’ll make keeping up with mortgage payments burdensome. Plus, you’ll be able to fully own the second property, which will make it more profitable if you need to sell it.
5. Familiarize Yourself with the Area
You might love the home, but are you in love with the neighborhood? We suggest visiting the area your home is in a few times before going forward with the buy.
Visit the area at different times of the week and different times of the day. You’ll want to see what the neighborhood is like on a Saturday night and on an early Monday morning. This will help you identify any potential hiccups along the way, such as noisy neighbors or excessive traffic.
We also suggest reaching out to a local real estate agent. If you’re buying a home outside of your area, it can be tricky navigating the market. A local real estate agent will be able to guide you through the process, so you can skip a lot of the mistakes that you might have made.
For instance, will the second property be in an area prone to flooding? Real estate agents will be able to prepare you for what the weather is like in the area, along with suggesting the best insurance providers to secure your home.
If you have bought a mobile home, learn about the area and the cost of moving the home before moving in.
Confidently Buying a Second Home
After reading this article, do you still think that buying a second home is the right choice for you? If it’s not an impulse buy, and you’ve done your homework about the property, it might be time to make a move. But don’t jump into a lending situation, without exploring all of your options first.
Go ahead and start getting quotes from different lenders today. If you’re looking for more ways to grow in life, then you’ll want to see what the rest of our website can help you with.