Buying a Second Home or Property

Home LoansView Blog


By nbkc bank

Your home is a castle. But sometimes, it wouldn’t hurt to have a second castle, or one with a lake instead of a moat. Or better yet, one that you could rent out for passive income (whenever a carriage passes through town).

By now, the castle metaphor is tortured. But the idea itself never gets old: a second home can be a great investment. And if you’ve already purchased a primary residence, you may be wondering how this process differs. Keep reading and we’ll break it all down — giving you the basics on smartly navigating a second mortgage.

The Different Kinds of Second Homes

As you may be aware, humans can only be in one place at a time. But there’s plenty of reasons why you might want a second home:

  • Vacation Home: The classic reason for a second home — preferably on a lake, under a palm tree, or in some forested locale. Those aren’t mandatory of course, we’re just dreaming.
  • Rental Property: If you’re the perfect host, it’s a perfect reason to buy a second home for either short-term rentals — or longer-term tenants.
  • Investment Property: Flip. Resell. Profit. But keep in mind, if you’re holding onto a home for the short-term, discuss it with your loan officer. The requirements will be different.
  • Second Residence: If you’re spending a lot of time commuting to another city, for either work or personal reasons it could be worth buying a second residence closer to your destination.
  • Family Member: It’s common to help facilitate a home purchase for a trusted friend or family member — like a parent who is downsizing, or a child in college who needs an off-campus living space.

The Pros and Cons of a Second Home

Real estate is one part of a balanced investment portfolio. And if you’ve already diversified among stocks, bonds, and other assets, then a second home can make good sense. The benefits are real, and they include:

  • Long-Term Profit: On average, real estate consistently gains value, and is less impacted by downward swings in other assets, like the stock market. If consistently rented out for short-term or long-term occupants, you can fully cover the mortgage — and then some.
  • Tax Benefits: If the second home is unoccupied when you’re not there (instead of rented out), then you can fully deduct the interest and property taxes from your gross income — just like your primary mortgage.
  • Retirement: Planning for your post-work life can include finding a new residence. If you’d eventually like to make your vacation home a full-time home, then a second mortgage can give you a head-start.

Of course, there’s a potential downside. And in this case, it typically comes down to money, time, and risk:

  • Initial Cost: Alongside a downpayment, you’ll need to do all the little things that make a house a home: couches, pillows, kitchen essentials, etc.
  • Mortgage Rules: The standards for a second mortgage are stricter than a primary home. You won’t be able to use an FHA or VA loan. And you’ll probably need 20-30% for a down payment, plus enough income to cover the monthly mortgage.
  • Upkeep: When a pipe breaks, or the roof needs replacing, then it’s your responsibility to care for the house. If tenants are involved, you’ll need to set time aside for landlord duties — or pay someone who will.

Consider the Market Conditions

The housing industry has seen a seller’s market in recent years. In that environment, sellers are typically getting multiple offers on a home, and often receiving well-above asking price. They may even pay full cash, or waive the right to an inspection. In this environment, it’s easy to get caught up in the rush to buy — no matter the cost. But it’s worth keeping a level head.

Is it the Right Time to Buy?

Like most important questions in life, only you can answer it. But a good loan officer can help you reach the right conclusion. And because a second mortgage can be a little sticky on the details, it’s important to work with someone you trust.

At nbkc, our loan officers can help you explore all your options. For example, you may be able to finance a second-home purchase with equity on your primary home. We’ll walk you through the process — and all the requirements, depending on your situation.

When you’re ready to look at a second home, take a few minutes to explore with equity and options We’ll be here to help, whenever you’re ready.