If you have reasonably low debt, and money left over at the end of the month, you can probably afford a second home.
Lenders want to make sure that your debt does not exceed 40 percent of your gross income.
You'll get the most competitive mortgage rate on your first home — not your second. Your mortgage rate could be up 1/4 or even 1/2 a point.
The climate right now is great for getting a good rate, because of competition between lenders. Make them work for you!
For second homeowners insurance, be prepared to shell out a little more than you do on your primary home. A lot of insurers realize that if it's a vacation home you are not around all the time.
Stay with your current home insurer and you may get a solid discount.
A central alarm system that detects burglars and fires can cut 20 percent off your rate. And buying a home in a gated community could save you 10 percent.
A second home can actually help you out with regard to your taxes — if you live in your vacation home more than 14 days per year, you can deduct your real estate taxes and mortgage interest, as long as your combined mortgages don't exceed a million dollars.
Rent It
For many second homeowners, an occasional renter can help offset a lot of expenses.
If your house is rented out for less than 14 days a year, you don't have to report that income to the IRS. If you rent out for more than 14 days, you have to report the income to the IRS, but you can deduct some expenses too.
If you're going to be renting, make sure you have a very good accountant.
Don't expect the rental income to cover your monthly mortgage.
Make sure you screen your tenants very closely. Use a good property management company that will guarantee the condition, if not, make sure you get a large deposit on the property from the tenant.
A good property management company will take a lot of the work, and worry off your plate.
Encourage long-term renters to take out renters insurance. Rent only by the month or the season, as longer-term renters tend to take better care of a property.
Make sure you have a locked storage room that only you have the key to.
Quick Tips:
Current debt load should not exceed 40 percent of your gross income.
Mortgage rates on vacation homes can be 1/4-1/2 a point higher.
Some home insurers offer discounts of 5-10 percent on second homes.
1/2 of second home owners leave their home unoccupied for 330 days a year.
