The Key to Buying a Second Home

If you’ve been thinking about buying a second home, now is a good time to take the leap. Mortgage rates are still historically low.

But there are some vital things to do before you start shopping. Follow these steps to make buying a second home a smooth process:

The best way to start the search for a second home is to 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. Factors that tend to help properties hold or increase in value are proximity to a major metropolitan area, ease of access and the availability of year-round amenities.

Factor in additional costs. Today’s second-homebuyers are more interested in enjoying their properties rather than getting a quick return on their investment.

Still, 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. It has become more difficult to get flood insurance in coastal communities, and the cost has increased greatly in some markets.

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.

If you have a good relationship with the mortgage lender on your primary residence, that might be a good place to start your quest for a second-home mortgage.

Take into account 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.