Second Home Buying: Not Just for Affluent Mortgage Loan Seekers

Buying more than one home for vacation or investment purposes is not just for the affluent. The second home buying market continues to gain momentum, thanks to baby boomers.

Bob Walters, chief economist at Quicken Loans, said that baby boomers are retiring - and they are doing so with different options than any other generation.

“It’s a powerful force that we’re only seeing the beginning of,” Walters said. “I think it’s kind of a dream for a lot of people.”

Middle-age, middle-income households are driving the second-home market, according to a survey released in 2006 from the National Association of Realtors.

The survey found that the average vacation buyer is 59 years old, earned $120,000 in 2005 and bought a property that is 220 miles from his or her residence. Six out of 10 of those surveyed own two or more homes in addition to their primary residence, according to the NAR’s findings.

How To Finance
Financing a second home is not much different than buying a primary residence. Walters recommended first going to a mortgage lender so buyers can find out what they can afford.

“You don’t need perfect credit,” Walters said.

He pointed out that there are limits on second homes that are not income-producing properties. For instance, one of the general rules is that it be 50 miles from the primary home. Because it is cheaper to home loan finance a second home than an investment property, it keeps people from classifying as a vacation home a rental property that is a mile away from their primary residence.

When getting the mortgage for a second home for vacation or investment purposes, pay attention to the loan terms.

Christine Karpinski, director of owner community of HomeAway.com, said some mortgages don’t allow a property to be rented for 90 days after it closes. Tax implications differ for second homes used as an investment versus vacation use. Tax professionals will be able to explain what is required for the filings.

Karpinski recommended that before buying a home, it might be better to buy the home as an investment property because the buyer can take more of it as a write-off - she also cautioned that there are specific tax rules tied to second homes and tax deductions.

Things To Consider
Prospective buyers might want to think about why they want to buy another home because there’s maintenance and several other issues to consider.

“The reality is owning a home is work, not even a financial thing,” Karpinski said. “It’s a time commitment.”

If buying long-distance, how much time will the buyer spend in the home? It is also a major commitment to fly or drive to the home. In places such as the Florida housing market, there are hurricane season preparations that need to be taken into consideration.

Vacationers are also maximizing the time they spend at their homes by buying closer to home.

“What we’re seeing is the second home is closer to the first home where you might access it on the weekends,” said RealLiving.com CEO Harley Rouda.

He said the shift is because owning in coastal areas is outside the capability of some home mortgage loan borrowers and that the ability to get there is a huge driving force.

“The neat thing about doing it is you can enjoy that property when the weather is nice and still commute to work,” Rouda said. “That’s a lot less than a plane ticket to Florida.”

With more people buying closer to home, prices on second homes in areas near primary residences are going for much higher.

“If the buyer looks at it from all angles, the second home provides a great opportunity for wealth building,” Rouda said.

Use Local Knowledge
Experts recommend choosing a local real estate agent to help find a home in the market in which a person wants buy a second home. Karpinski said buyers need a real estate agent’s knowledge of an area, and buyers can use the expertise to their advantage.

That is especially true if buying in another country, where having an expert who knows real estate laws and financial consequences of home ownership can be an invaluable asset. Karpinski said to be careful buying abroad because some countries don’t allow the buyer to hold the title.

“Often you have to have 50 percent down or have a mortgage through that country’s banks,” she said. “Most often, people who buy abroad buy with cash or a significant amount of cash down.”