Your annual vacation is the highlight of your year, and after spending so many summers at the same destination, it feels like a second home. So now that you’re retired, it feels natural to make it your second home.
Before you buy a vacation home at your favorite getaway, however, Swasey Family Realty offers a few things you need to know about buying a second home.
Second Home Financing
First, it’s critical to determine what you can afford without compromising your financial situation. This means crunching some hard numbers to come up with a figure that fits and doesn’t leave you house poor or regretting your purchase.
You also don’t need to pay cash for your second home, but be prepared for stricter lending requirements than you faced buying your primary residence. Second home mortgages typically require higher credit scores and larger down payments. You’ll get the best second home mortgage rates with a 10-20% down payment and a credit score over 700.
You can tap into your primary home’s equity for the down payment, but think twice before dipping into retirement accounts. Early withdrawals from 401(k) and IRA accounts are subject to a 10% penalty, and income tax and early withdrawal exceptions are only available to first-time homebuyers. If still working, you may be able to use a 401(k) loan for the down payment, but be advised that you’ll have to repay the loan ASAP if you leave your job.
Maintaining a Second Home
A vacant home presents a number of challenges. Not only is it more expensive to insure, a second home is also prone to lapsed maintenance. After all, when you’re away for months, you don’t know if the air conditioner stopped working or the roof sprung a leak. And when problems go undetected, they grow into bigger, more expensive issues. One thing you’ll want to invest in is a good security system and locks which can help keep insurance costs down. Ideally, you should change all the locks on the new house, and install new deadbolts. A professional can make this an easy task, and if you try a search for a “locksmith near you” you’ll find a list of reputable contractors prepared to assist you.
A property manager is essential for protecting your home while you’re away. He or she will check in on the home to keep it clean and in good repair while it’s vacant. If you choose to rent out your vacation home, a property manager can coordinate leasing, tenant relations, and cleaning and maintenance. Some homeowners are hesitant to outsource, but many companies use management tools that keep you in the loop via your smartphone or tablet, so you always know what’s happening at your second home.
Renting Out Your Second Home
A few things change if you plan to use your second home as a rental property. A home is considered a rental property if it’s rented for 180 days or more per year. While renting for fewer than 180 days skirts certain lending requirements, homeowners still have to pay taxes on rental income if renting a property more than 14 days per year.
Credits and Thanks to Andrea Needham of eldersday.org for writing this article!