Your Second Home Escape
BY RYAN DE LA ROSA
Looking to summer on the lake or escape the hustle and bustle in a remote cabin?
If you were fortunate enough to grow up on one of the thousand lakes of Minnesota, then you already know the reason for making it out here on the weekends. If you've got children, you know how important it is to pass the lake life experience on to the next generation.
Buying a second home is the best way to enjoy the great outdoors of Minnesota. However, many secondary homebuyers aren't sure where to start. Searching without understanding those financial requirements and expenses are often heightened the second time around.
ESCAPING TO LAKE LIFE
Imagine having a designated vacation spot. If you and your family are tied to the city for work and school, getting away is necessary. It's easy to spend more time getting out if you have a house in a place you love to be.
Although many first home buyers haven't thought this far ahead, a second home can easily equate to a house to retire in. If you plan to move after you retire, you can get a head start on creating a community in a place you love by purchasing a second home.
ยท A retreat now is a home to retire in later.
More often than not, homes tend to increase in value, so you can use your second home as a means of investing. Keep or sell your home down the road; the choice is yours.
THE SECOND MORTGAGE PROCESS
Take time to familiarize yourself with the upfront and long-term costs associated with purchasing a second home can save you from complications during the process.
First, let's define a second mortgage.
A second mortgage is a charge over a property that already has another mortgage on it. The mortgages are ranked in the order in which they were lodged. So if the debt isn't paid and the property is sold, the first mortgage is paid back before any money is paid to the second or third mortgagee (lender).
A Higher Down Payment?
It's a common misconception that the standard 20% down payment made for a primary residence will also apply to purchase a second home.
Down payment requirements are typically more significant than that of the typical first home purchase, depending on property cost, applicant credit score, geographic location, and other factors.
Higher Interest Cost
Investment property purchasers are likely to face mortgage rates about one half of a percent higher than those seen by primary and vacation home purchasers. There is also often a fee, between one-half and a full percent of the loan value, assessed for investment properties at settlement.
Additionally, second home buyers face more stringent credit score requirements than those experienced by primary home purchasers. Individuals with a top tier credit score will generally have access to the most attractive mortgage prices.
CROSSING STATE LINE
An unsuspecting buyer can run into a few snags when purchasing a property in a new state. For instance, a buyer in North Dakota may not know to prepare for a mortgage tax, for example, in Minnesota. Also, settlement costs and requirements vary by state, and sometimes quite dramatically.
For first-time second home buyers, these unfamiliar requirements can add additional out-of-pocket costs or needlessly delay a purchasing timeline.
Working with a banker or financial planner early in searching for another property can help a family or individual plan a working budget and prepare for the additional costs and requirements associated with purchasing your second home escape.
THE BEST TIME TO BUY A SECOND HOME ESCAPE
According to studies, the best time to buy a second home in beach areas is winter when the market and tourism is slow. Combine that with another fact about Lakes country of Minnesota, and you have a solid buying season. In rural areas, fall and winter are good times to buy second homes since those areas also cycle with the typical primary homeowner markets of spring and summer.
In resort-towns, spring and fall are the best times to buy. Those are the slow times for tourism and, therefore, fewer buyers to compete with, and more sellers need you. The only caveat would be areas with a lot of beautiful fall foliage, then you would want to wait until after the beauty of autumn has waned, and tourism drops off.
It is your due diligence to research the market you're thinking of buying in.
If we look at the current real estate market in Lakes Country, we are experiencing very low interest rates and low inventory. Meaning, not many homes are for sale on the market. It's best to know what you are approved for in advance, so when a property in your criteria comes on the market, you can pull the trigger quickly. If you're ready to learn more about purchasing your new (or next) home, we are prepared to help you explore your options and find the right place for you in Lakes Country.
If you're ready to learn more about purchasing your new (or next) home, the Lake Country experts at Jack Chivers Realty are here to help you explore the possibilities.