There are many steps to take in buying a second home (vacation home). Many things to consider involve more than just being tired of having to rent. Below is a step-by-step outline of what is involved in buying a second home.
Step 1: Decide if it's the right time to buy. Do you have disposable income? Do you want to invest your extra money in real estate? Are you planning on keeping the new property for at least 12-24 months? If you answered yes to those questions then keep reading, if not you may need to re-evaluate your idea of a second home.
Step 2: Take the following questions into consideration- do you want something in driving distance for a weekend retreat, do you want to hop on a plane and head to Southern Florida for the winter or are you getting a jump start on a retirement property? Also ask yourself: How often will you go? How will you get financing? Can you afford maintenance and insurance? How is the property appreciation rate in your desired location? Will you need rental income to offset the monthly mortgage payment? *If you don’t think you’ll use the second home for more than a week each year you may consider joint tenancy, a timeshare or buying with a family member or friend. Once you have answered those questions, continue to the next step.
Step 3: Do your homework. Find the right property in the right location. If you are considering a place that you are not fully familiar with, then take the first step and take a trip to check out the area. Carefully evaluate the time and expense it takes to get to and from the property. Try to visit during different seasons and see what it feels like at different times in the year. Review home sales in the area and see what the resale value is on similar properties. Find an experienced real estate agent to work with.
Step 4: Explore your financial options. A second home may come with extra expenses different from your first home depending on location and how often you are using the home. Insurance may be more expensive depending on location or you may need to hire a property manager to take care when you are not home. Be sure you have the additional income to cover these extra costs. Calculate your buying costs, closing costs and down payment. Creating a budget for the second home is a great way to be sure you’re covering homeowner expenses as well as the cost of living in the area.
Step 5: Understand the taxes. Taxes for a second home or vacation home are based on your financial situation and can vary. Working with a tax professional can be to your benefit in this step.
Step 6: Finding the right second home for you. Figure out what type of environment is going to work best for you and your lifestyle. How close are shopping centers, entertainment, restaurants, nightlife, etc.? What type of home do you want (single family detached, condo, townhouse, co-op, duplex, etc.)? How much home maintenance do you want? How much do you want to share with neighbors? Does it need to be pet friendly? Do you need guest bedrooms? Do you want to be able to entertain outdoors? Start looking at homes for sale here.
Step 7: Once you find a home you want to buy, look at Market Reports in the area. When you are researching prices it is good to look at similar homes in the area that have sold in the past six months.
Step 8: If you are buying something part of a homeowners association (HOA): get a current copy of conditions and restrictions, introduce yourself to the association president, and review the HOA budget.
Step 9: Once you are ready to buy your second home, consider these next few things. Agree with the seller on a move in date and put it in writing. Reserve your funds for closing. Work with the seller to ensure the appraisal, home inspections and any repairs. Consider getting a home warranty. Do a final walk-through before the closing. Review your estimated closing statement.
Step 10: Bring your documents to the closing. Congratulations, you have a second home!