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Becoming a Second Home Buyer May Be Easier Than You Think
By Debbie Dahmen
Many people have the desire to own a second home, and yet feel this
may be out of their reach. Fact is, it could be easier than you
think. Second homes aren't only for the rich. For many, they have
become mainstream. Whether they're used for vacations or for rental
income more than 9 million dwellings in this country are second or
third homes, accounting for about 6% of residential sales. 3/4 are
considered vacation homes and the rest are investment properties or
undeveloped land, according to a 2002 survey by the National
Association of Realtors.
Where Do You Find the Money for a Down?
You don't have to have a pile of cash on hand to buy that second
house. You can use the equity in your primary residence to help pay
for a second (or third) home. Prior to moving forward be sure you
explain to your lender what you're doing. You will also want to
consult with a tax advisor. This will assure as smooth a process as
possible.
There are so many variables, a primary one being how much equity you
have in your current home. You want to be armed with information on
what the benefits of pulling out equity in your existing home vs.
borrowing is. It always comes down to the cheapest cost of borrowing.
It's not always easy to identify the least expensive cost of
borrowing. That's why communication is so important. The lender needs
to know which house will be your primary residence and which will be
secondary. In most cases, you will find that the interest rate on an
owner-occupied home will be about 3/8 of a percentage point lower
than for a non-owner occupied house. This reason alone gives you more
motivation to get as large of a loan as possible on your primary
residence because it's the cheapest cost of borrowed money.
Understanding Your Resistance
Many borrowers resist this line of reasoning because they want to
build equity in the home they live in. Although it seems
instinctually like the smart thing to do equity is equity. It doesn't
matter which house it's in. If you have a lot of equity in your
primary residence and you want to buy a vacation home, it might make
sense to refinance the mortgage on the primary home for more than the
current loan balance. This is called a 'cash out refi'. How it works
is you borrow more than the current balance, pay off the current loan
and get the remainder in cash. You can use the cash extracted from
your primary homes equity to make a down payment on your second home,
or even to buy it outright.
As you determine your long-term financial and home buying goals,
consider all your options. You will be glad you did.
__________________________________
Debbie Dahmen is a member of the Distinctive Properties team, a
unique personalized real estate agency serving the south end of the
Salt Lake valley including Draper, Riverton and Sandy. Family owned
and operated, Darlene Dipo, Debbie Dahmen and DeAnna Dipo pooled
their 60 years of experience to offer their clients flexibility and
individualized attention. All three women have achieved the coveted
designation of Certified Real Estate Specialists, a designation held
by only 3% of real estate agents. Offering services including buying,
selling, and relocation, Distinctive Properties offers relocation
services throughout the United States. Visit
www.distinctivepropertiesSLC.com for further information.
By Debbie Dahmen
Many people have the desire to own a second home, and yet feel this
may be out of their reach. Fact is, it could be easier than you
think. Second homes aren't only for the rich. For many, they have
become mainstream. Whether they're used for vacations or for rental
income more than 9 million dwellings in this country are second or
third homes, accounting for about 6% of residential sales. 3/4 are
considered vacation homes and the rest are investment properties or
undeveloped land, according to a 2002 survey by the National
Association of Realtors.
Where Do You Find the Money for a Down?
You don't have to have a pile of cash on hand to buy that second
house. You can use the equity in your primary residence to help pay
for a second (or third) home. Prior to moving forward be sure you
explain to your lender what you're doing. You will also want to
consult with a tax advisor. This will assure as smooth a process as
possible.
There are so many variables, a primary one being how much equity you
have in your current home. You want to be armed with information on
what the benefits of pulling out equity in your existing home vs.
borrowing is. It always comes down to the cheapest cost of borrowing.
It's not always easy to identify the least expensive cost of
borrowing. That's why communication is so important. The lender needs
to know which house will be your primary residence and which will be
secondary. In most cases, you will find that the interest rate on an
owner-occupied home will be about 3/8 of a percentage point lower
than for a non-owner occupied house. This reason alone gives you more
motivation to get as large of a loan as possible on your primary
residence because it's the cheapest cost of borrowed money.
Understanding Your Resistance
Many borrowers resist this line of reasoning because they want to
build equity in the home they live in. Although it seems
instinctually like the smart thing to do equity is equity. It doesn't
matter which house it's in. If you have a lot of equity in your
primary residence and you want to buy a vacation home, it might make
sense to refinance the mortgage on the primary home for more than the
current loan balance. This is called a 'cash out refi'. How it works
is you borrow more than the current balance, pay off the current loan
and get the remainder in cash. You can use the cash extracted from
your primary homes equity to make a down payment on your second home,
or even to buy it outright.
As you determine your long-term financial and home buying goals,
consider all your options. You will be glad you did.
__________________________________
Debbie Dahmen is a member of the Distinctive Properties team, a
unique personalized real estate agency serving the south end of the
Salt Lake valley including Draper, Riverton and Sandy. Family owned
and operated, Darlene Dipo, Debbie Dahmen and DeAnna Dipo pooled
their 60 years of experience to offer their clients flexibility and
individualized attention. All three women have achieved the coveted
designation of Certified Real Estate Specialists, a designation held
by only 3% of real estate agents. Offering services including buying,
selling, and relocation, Distinctive Properties offers relocation
services throughout the United States. Visit
www.distinctivepropertiesSLC.com for further information.
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