So, you’ve purchased your first home, saved a bit of money and are ready to buy a second. Congratulations! Preparing to buy a second home can be an exciting venture, but it can also be a difficult trail to traverse once you consider tax laws, loan specifications and multiple home maintenance.
Here are some questions to ask yourself before you hit that market:
Can I afford two mortgages?
Remember that you’ll need to qualify for another mortgage on top of the one for your first house, as well as other life expenses like savings, education, health care and more. You’ll also need to put down between 10 and 20 percent up front. Check mortgage rates in your area and use a 30 year mortgage loan calculator to determine if you can afford another mortgage payment in your monthly budget.
If you think you can afford it, it’s recommended you stick with the same company that your first mortgage is from. Also, consider finding a fixed-rate mortgage to prevent a future raise in interest charges.
Can I afford the tax implications?
Purchasing a second home can also lead to some unexpected tax implications. If you spend as much time in your second home as you do your first, you may be eligible for tax deductions on your mortgage interest and property taxes. If it’s a true vacation home or if you plan on renting it out, however, you may have to pay extra come Tax Day.
Talk to your realtor and bank to learn exactly what changes you can expect.
Can I afford the upkeep of two homes?
Owning another home means caring for another home, if you’re up to it. You’ll need to budget for:
- Basic utilities
You’ll need to pay to keep the lights, water and electricity on for however long you plan on being at the home or renting it, in addition to your first home. You can save some money by keep lights, air conditioning and water off when you’re not staying at the home, but they will still need to be set up.
- Repairs, maintenance, and improvement
Whether you’re renting your second home or saving it for you and your family, you’ll be responsible for upkeep and normal wear and tear. Budget time and money for pipe repair, yard maintenance and the occasional home improvement project. Also be aware of any HOA fees in your new neighborhood.
- Property taxes
Property taxes are deductible from your federal taxes, but they can also amount for thousands of dollars in biannual costs. Research the area in which you want to buy your second home to find out how much property taxes are and how likely they are to increase.
- Rising mortgage interest rates
If you have an adjustable rate mortgage, your interest fees can go up fairly high in a short amount of time. If you can, find a fixed-rate mortgage to keep surprise charges at bay.