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Sunday Morning Coffee June 10th

Sunday Morning Coffee June 10th

Welcome to another edition of Sunday Morning Coffee with Don.  Today we discuss the steps in buying a second home in out market and the necessary steps you should take. Also before any purchase of any Real Estate, always consult your financial planner and accountant to review benefits and taxes of purchasing your second home.

Here’s a guide to help you analyze your options.

1. Match housing choices to your lifestyle

Many people assume they must own a primary residence before owning a vacation home, but that’s not necessarily true. What’s really important is matching your housing choices to your lifestyle.

You may live in a city and want lots of space that you can’t afford there. You could rent a modest condo in the city and buy a large vacation home outside the metro area.

Or you may live in a large country house and want to enjoy city life as much as you can. In that case, you could own your country home and also buy a vacation condo in the city.

Either way, the financing and tax implications are almost the same.

2. Decide how you’ll use it

From a financing and tax standpoint, you need to consider how you intend to own and use your property. You have three options:

  • Primary residence. You can buy for as little as 3 percent down (if your loan doesn’t exceed $417,000), and you get significant homeowner tax benefits.
  • Second home. You can use your second home anytime you want, but lenders won’t let you rent the home. Buy for as little as 20 percent down, and qualify for the loan using your full primary residence cost plus your full second home cost. Mortgage rates and tax benefits are the same as primary residences.
  • Investment property. You can rent the home and use it when it’s not rented. Rates are .25 percent to .375 percent higher than second home rates, and your down payment usually starts at 30 percent. You qualify for the loan using your full primary residence cost plus your full investment home cost, but you can use rental income to help qualify. Tax treatment is less beneficial, but the extra income can help with affordability.

3. Understand the total cost of owning it

You can determine what you can afford in seconds. Then you’ll find a lender to formally analyze the cash available for down payment, closing costs and reserves. You’ll also calculate the total monthly cost on your existing home (whether you rent or own), plus the total monthly cost on the vacation home.

You also need to plan for personal budget items that lenders don’t use in their qualifying calculations:

  • Gas, electric, cable TV and internet
  • Furniture and housewares
  • Travel costs to your vacation home
  • Total cost of property maintenance items, like cleaning, landscaping and pool/spa upkeep

4. Review monthly and transactional cost line items

Suppose you live in San Francisco and want to purchase a home in West Palm Beach, FL  for $600,000. Here’s how much it would cost as a primary residence, second home and investment property.

Estimated monthly costs
Primary or second home Investment property
Mortgage payment $2,223 (30-year fixed mortgage at 3.75%) $2,035 (30-year fixed mortgage at 4.125%)
Insurance $100 $100
Property tax $600 $600
TOTAL ESTIMATED MONTHLY COSTS $2,923 $2,735
Estimated cash to close
Primary or second home Investment property
Down payment $120,000 (20%) $180,000 (30%)
Lender fees $2,500 $2,500
Title/escrow/inspection fees $3,500 $3,500
TOTAL ESTIMATED CASH TO CLOSE $126,000 $186,000

5. Make an offer using a Realtor.

Start your search on Don Beyersdorf.com

Then start finding the areas you want to live in, research them and google the areas highlighted in communities. Contact Don to find out how to move forward and what you will need to buy your second home. He will take you through the steps just like buying your first home, but he knows the benefits of owning a second home.  He is always their to assist you in your journey and will give you the right advice to make an offer and purchase your vacation home.

 

If you follow these steps, your closing will be a snap, and you’ll be relaxing in your vacation home before you know it.

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kyle graven

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