Are you thinking about buying a second property, but you’re not sure where to start? Whether you’re buying a second home or dipping into real estate investment, it’s essential to go in prepared.
So how can you make sure buying a second property is the right financial move? Here’s what you must consider before buying a second house.
Can You Afford Buying a Second Property?
First, it’s crucial you’re being realistic about your financial situation. Ask yourself if you can truly afford to buy another home.
2021 was a wild year for real estate, with the price of newly listed homes rising 32.6% on average.
Ideally, you’ll have paid off your first mortgage or made consistent payments. Remember that the interest rate is dependent on your credit score.
Use a mortgage calculator to get a better idea of your monthly payments. Second mortgages have slightly higher interest rates, and you’ll have to prove to the bank you can handle it.
What’s the Reason You’re Buying?
There are many reasons people purchase another house, such as investing in real estate or buying a vacation home. Consider the reason you want to buy a second house. Here are some common reasons:
- Buying a rental property
- Flipping a house
- Vacation home
- Buying for a family member
- It’s a commuter home
- You want to upgrade to a bigger house but keep the old one
Determine the reason for buying a house first so that you get a property with all the features you need. For instance, you might need a house within a certain distance from your workplace if it’s a commuter property. If it’s a rental, you might want to buy in a trendy neighborhood.
Once you have the reason in mind, you can start looking at homes for sale.
Decide How to Finance Your Second Home
It’s important to keep in mind that lenders may have different requirements depending on how you plan to use the second home. For instance, with a conventional loan, you can rent the property for up to six months a year without it falling into the category of an investment property.
These are the four types of loans you can use if you plan to buy a second home as an investment property:
- Hard money
- Private money
- Home equity
You’ll need to understand the qualification requirements first if you want to get a loan.
Work With a Real Estate Agent
Before you buy a second property, you should understand the current market. Real estate agents can tell you more about the neighborhood, market prices, and other important information that’s hard to find on your own.
A real estate agent can also help you secure a second mortgage by informing you on what to expect. They can crunch the numbers for you so that you can get a good estimate.
Are You Ready to Buy a Second Property?
If you plan on buying a second property, make sure to follow these tips. They’ll help you get started, so you can begin to plan and search for the perfect second home.
For more real estate and financial advice, be sure to check out some of our other blog posts.