“I’m going to the cabin this weekend!” How many times have you heard that from a neighbor, a friend or a workmate and thought that dream of a second home is out of reach for you. Think twice. Second homes are in reach for almost all of us. Mortgage expert Carrie Guarrero, debunks the myths around what it takes to get into your dream getaway.
Is 20% Down a Must?
It’s a common misconception that in order for you to afford a second home, you have to have plenty of money. According to our go-to mortgage expert, Carrie of Fairway Independent Mortgage, “plenty of money” is a relative term. We have good news for people looking into investing in a second home: you DON’T NEED 20% DOWN PAYMENT. The “plenty of money” aspect would have more of a role in maintenance, repairs, and affording the payment.
Second home mortgage rates are actually lower than commonly thought as long as you utilize your second home as an actual second home and not as an investment property. In fact, interest rates are very comparable to primary residences.
Three Things to Consider for Second Home Buyers
When looking into second homes or investment properties, there are three important things that Carrie highlights to her clients and these are:
- Reserves: When investing in a vacation property, Carrie cannot emphasize enough that you will always need reserves. Reserves are available funds you can use to pay your mortgage if an interruption in income does happen. You have to consider the possibility, God forbid, of temporary disability or loss of income. Carrie says that money in the bank is where magic is. You don’t need to worry if you have 6 months of reserves to subsidize your payments or debt load if something happens.
- Maintenance and repairs: Extra responsibility comes with owning a second home. A second home is an added layer of potential for maintenance and repairs as you will be maintaining two households. Costs can come out more than what you expect so make sure to plan carefully.
- Taking care of the property: This is the part that most people tend to overlook according to Carrie—regular maintenance, repairs, utilities still need to be taken care of even when life events prevent you from going to your vacation property. There are options available. In most cases, vacation property owners tend to self-organize into little communities with an association that employs a maintenance person to run around and take care of the grounds or properties. If that opportunity isn’t for you, you can always do your research. Carrie and her Fairway team help guide people through these things.
Can I Rent Out My Second Home?
With the rise of Airbnb and similar services, the trend of renting out vacation homes is on the rise. However, if you need to rent out your second home to afford it, it becomes an investment property. Investment properties and vacation properties are completely financed differently.
Your second home is a property for your own personal use.
You can occasionally rent it out but don’t count on the income. Carrie again emphasizes the importance of reserves because when you count on occasional rental income and it doesn’t happen, that could mean financial heartache.
From a financing perspective, renting out your second home once or twice a year shouldn’t be a problem.
Getting into nightly rentals or something similar, though, would qualify you for a different kind of loan. Take note that a rental home is considered a commercial property. For vacation homes, there are actually documents you have to sign indicating that you will not be renting your house on a daily basis. There’s a big difference between the two and Carrie would be more than happy to walk people through those variables.
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Loans Are Not as Complicated as the Media Portrays It to Be
For Carrie and her team who do loans every single day— and they’ve done a lot! — they understand that loans can sometimes be terrifying for those who are vaguely familiar. A lot of news headlines plant seeds of doubt in people’s minds. People get scared and don’t bother learning that buying a second home can actually be an option.
“Don’t disqualify yourself…don’t let that stop you. Check it out. What do you have to lose? Bottomline: people just need to pick up the phone and let’s walk through it. If the time is not right now, let’s make a plan to get where you want to be.” -Carrie Guarrero
For more information and to ask Carrie a question:
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