Thinking about buying a second home is wonderful, and it can be extremely practical, too. Here are three tips for buying a second home.
Investment:
Many reports around the nation are pointing to a recovering housing market. This means that many homes are set to appreciate in value. If you are buying a second home as an investment, make sure it is worth the risk.
Not every neighborhood is primed to rise in value. Also consider what you will do with the home as it appreciates. Rental or vacation homes are highly doable if you can qualify for a loan.
Another consideration is how well you can afford the second home if there is no rental income. Your first home and your second home should not exceed more than 1/3 of your total monthly income. Expect also to put down at least 20 percent of the second homes value as a down payment.
Financing:
So much speculation is out there about financing. One thing is abundantly clear interest rates can not fall much further. Consider a locked in interest rate if you finance your second home.
A few economic considerations include whether or not the federal government is going to continue to buy bonds as a means of keeping interest rates low. It is likely that this program will have to end sometimes in 2014, according to the government, and that could lead to higher interest rates. That is a factor that you need to calculate because it will not only affect your monthly payment, but also it may affect your annual taxation levels.
Taxation:
Taxation is a gray area, and you should discuss tax planning with a professional. In 2012, homeowners of a second home that was not rented out more than 14 days per year, were entitled to deduct the interest incurred by both the first home and the second home.
The value was of the deduction was up to a total value of 1.1 million dollars. If the property is to be a rental then you can deduct the expenses of renting out the property, but you have to claim the rent as income.
However, if you rent the property out for less than 14 days per year, you do not have to report that rent as income. There are benefits to buying a second home and sitting down with your tax professional can help you understand them all.