Homes can serve both personal and investment purposes in many situations, and a good example of this theme is among those who consider the purchase of a second home. Those who have the financial flexibility to do so may find several different benefits from this move -- both in terms of personal or family comfort and in terms of their investment portfolio.
At Integrity First Lending, we're here to offer the very best mortgage rates and home loan programs to a variety of buyers, from first-timers to those who already own a home and are considering the purchase of a second for several different potential reasons. What are some of the reasons people consider going this route, and what are some tips we offer clients who have decided to move forward with a second home purchase? Here's a basic primer.
Here are some of the primary reasons some homeowners make the choice to purchase a second property:
Our next several sections will go over a few of the most important considerations to keep in mind if you've decided to move forward with the purchase of a second home.
Many of the same themes that existed when you obtained a mortgage and purchased your original home will still be present when it comes time to buy a second home. You'll need to have a mortgage lender approve you for the amount you wish to borrow, and in some cases the new property will count toward your debt-to-income ratio, making it more difficult to qualify.
When going this route, make sure that you weigh out all of the pros and cons from a budgeting perspective. Are the tax breaks that come with owning a second home worth it? Will you be losing too much money each year on mortgage interest and other costs of ownership? Remember to take all factors into account before making your final decision, including important themes like second home maintenance and upkeep that some buyers tend to gloss over.
Taxes will be an important area to monitor here as well, and it's important to know that tax deductions are different for a second home than for your original. For instance, you are limited to $10,000 in tax deductions on a second home -- this is different than the $1 million you can deduct for your primary home.
In addition, those who want to use this second home as a rental location will have some different rules to follow. Your rental income is only tax-free for the first 14 days, after which you'll be required to claim it on your taxes. You can't deduct any of the costs associated with running the rental business from this, but you will have some added income each year from it -- which may or may not be a good thing depending on your overall tax situation.
In some cases when purchasing a second home, you may consider what's known as a consolidated mortgage. This refers to taking out one large loan to pay for both homes instead of two separate ones, which can carry some major benefits. For instance, you'll only have to make one mortgage payment each month, and some lenders will offer a lower interest rate when you buy with them on multiple properties at once.
You should understand the downsides of this route as well, however. Consolidating your mortgages usually means that you could lose the flexibility of refinancing later on if rates fall or if you want to make a change. In addition, your down payment will be higher as a result -- sometimes as much as 20% more than if you purchased each home separately at first. Speak to your lender to learn whether a consolidated mortgage might be the right move for you.
For more on purchasing a second home, or to learn about any of our mortgage programs or services, speak to the staff at Integrity First Lending today.
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