Home ownership has long been part of the American dream. And second home ownership – whether as an investment, a getaway or both – is the cherry on top of that dream.
Estimates vary, but industry studies indicate that about 5% of American adults – one in 20 – own a second home. Misconceptions about buying a second home First, let’s dispel a few common misconceptions. A second home is, above all, a home. It can cost as much to buy and maintain as your primary residence. If it is a rental property, don’t think of it as a “passive investment.” It’s not like a bond you buy and forget for 10 years. You’ll be running a small business. You’ll be thinking about it every day.
Financing can be a challenge, especially when mortgage interest rates are rising. Second homes are often more expensive to finance, especially second homes that are used exclusively as rental properties. If it’s an investment property, banks treat it as a business, and set more stringent lending requirements, including higher credit scores, higher interest rates and higher monthly payments.
The intricacies of mortgages for investment properties are a big reason many buyers resort to home equity loans taken against the value of their principal residences, or loans offered through many large financial services companies against the holdings in retirement accounts. Those options mean fewer hoops to jump through since you are in effect loaning yourself the money for the second-home purchase, instead of borrowing it from an institutional lender.
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Source: NBCNews - 🏆 10. / 86 Read more »