Second homes are an extraordinary investment and increase the buyer’s real estate portfolio. With each new asset they buy, the individual’s net worth could increase. Real estate is a worthwhile investment and could generate terrific profits or residual income. The requirements for buying a second home for the family guide buyers through the transaction.
Qualifying for a Conventional Mortgage
A second home that isn’t the primary home requires a conventional mortgage. The buyer must have credit scores of at least 620 and a debt-to-income ratio of under 43%. Since the property isn’t the primary home, lenders require at least 20% down to secure the mortgage. All conventional mortgages require private mortgage insurance until the borrower pays 78% of the loan amount. If the property requires any renovations, the borrower must increase their mortgage amount since conventional mortgages don’t offer renovation allowances besides the mortgage.
How Often Will the Owner Stay in the Property?
Buyers who purchase second homes must decide how often they will live in the properties. This defines what measures are necessary to keep the property safer. When a property is unoccupied for a long duration, it could become damaged because of the elements or break-ins. It is necessary for the buyer to follow a plan for keeping the property up to code and preventing the elements from causing wood rot and other structural damage. Even if the property owner stays in the home for six-month intervals, they need better protection for the property when they are away.
How Far Away Should the Home Be?
Some buyers choose second homes in their favorite vacation destination, and this gives them a home to live in while they visit the area. Others may buy a second home that is closer to them to give out-of-town family members a place to stay during extended visits. They also use second homes as a rental property to generate residual income for the buyer. Individuals can learn more about buying a second home by checking out NRIA now.
How Much Insurance Do They Need?
The new owner adds the property to an umbrella policy to generate savings on their homeowner’s insurance policies. Homeowner’s insurance must cover it throughout the duration of the loan. The borrower must also get landlord’s coverage if they rent out the property. A security system installation for the property decreases, insurance premiums, and unoccupied dwelling coverage protects their investment if the property is vacant.
Advice about a Maintenance Fund
Lenders and financial advisors recommend maintaining a maintenance fund to cover the cost of repairs and necessary services. Budgeting and savings can help them gain the funds quickly. The fund prevents the buyer from failing to maintain the property and repairing damage quickly.
Buyers purchase a second home for a multitude of reasons. For some, it is a second property to live in during hotter or colder seasons. For others, it could be an investment property they rent out for residual income. Buyers can review the requirements for purchasing a second home by contacting a broker now.