Tag: second home

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Dreaming of a Second Home

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You work hard during the week! Maybe you need a nice relaxation spot to spend your weekends or holidays. Maybe retirement is just over the horizon and you want to start enjoying the perks of owning a second home. Maybe you’ve already retired and are looking for an oasis to visit often. Whatever the case, a second home may be within your reach!

Many of us dream of a beachfront home. California, with its perfect weather, endless activities, and unbelievable seafood, is a frontrunner. Popular So Cal spots include La Jolla, Encinitas, Redondo Beach, and Dana Point. Second homes, however, don’t have to be near a beach. Imagine vacationing in historic areas such as Riverside, Avalon, and Julian. Whatever the case, many choose to live in So Cal full time because of the quality of life, weather, things to do, and is a dream for so many of us.

I hear all types of questions when it comes to owning a second home. Common questions include:

  • What is the minimum down payment on a second home?
  • Can I buy a second home that will eventually be my retirement home?
  • Is flood insurance required?
  • What are the second home mortgage options?

Okay, let’s break this down.

1.) What is the Down Payment Requirement on a Second Home Purchase?

Many people believe that buying a second home (or even a primary home) requires 20% down. Although buying a principal residence has more low to no down payment options such as VA, FHA, and USDA, lower down payments for second homes are still available if you know where to look.

For example, as little as 10% of the purchase price could be allowed as a down payment. An additional way of keeping the out of pocket funds low would be to include seller paid costs for the buyer. When buying a second home and financing between 75.01% – 90% of the price, the seller is allowed to pay 6% of the sales towards the buyer’s closing costs and pre-paids. If the loan amount is 75% or less of the price, then the seller may pay 9% toward costs.

Low down payment requirements make owning a second home more obtainable, and luckily, there are plenty of sources. Down payment sources (for funds to close) include bank accounts, retirement account withdrawal, retirement account loan, investment accounts, home equity loan/line on the primary, sale of another home or asset, and gift funds (after the minimum requirements are met).

Discuss these possible sources with your mortgage loan officer to find out if there are any other requirements and to discuss whether one option may have advantages over another for your situation.

2.) Can I Buy a Second Home That Will Eventually Be My Retirement Home?

This is an excellent question, and a very popular request these days. Enjoying a home while you can, before possibly moving into the home permanently may be ideal. Occasionally, the question, “Is it okay to buy a property as a second home and then convert it to a primary residence down the road?” The answer is, yes! That is perfectly fine, as long as the intention was to buy as secondary, it was used as secondary, and eventually converted to primary down the road.

As long as you can afford the two homes, this would be a great way to prepare for the enjoyment of a vacation property, learn about the area, maybe vacation there, and then eventually use it a lot!

3.) Is Flood Insurance Required?

A lot of times, buying a second home means living close to a body of water, whether it be a lake, pond, waterway, or ocean. If this is the case, the structure may be in a flood hazard area, and flood insurance is required. If you are considering a home with flood insurance, ask the seller for a copy of existing flood policy, elevation certificate, and survey. These help the buyer’s lender and insurance company determine whether or not the property requires flood insurance.

If flood insurance is required, these could help get the quote, and prove that the home is not in the flood hazard area. If flood insurance is not required, it may still be a good idea to obtain flood insurance, and because the structure is not in a hazard area, the flood insurance premium would be much cheaper. As always, consult with a knowledgeable agent about your best options.

4.) What Are My Second Home Mortgage Options?

This is an excellent question, and a very popular request these days. Enjoying a home While government loans such as FHA, VA, and USDA may be for primary residences, Fannie Mae and Freddie Mac conventional loans, as well as jumbo loans allow for second home financing. Plus, there are advantages to using conventional loans, such as flexible guidelines with student loan debt, low mortgage insurance rates for high scores, up to 50% debt ratio, condo financing, and second home renovation loans. Conventional loans are limited to the county conforming loan limits, but that’s where a jumbo loan comes in handy. Jumbo loans provide financing for luxury homes exceeding these limits.

If you’re looking to find your dream vacation getaway, retirement oasis, or just a second home, contact me and I can help you with the process!

 

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10 Things to Consider When Buying a San Diego Home in 2019

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#1 – Which San Diego Neighborhood is Right for You?

From Hipster communities, to Business Districts, San Diego has so many unique neighborhoods to choose from. You should carefully consider these communities based on affordability, availability, and just what fits with your lifestyle. Ocean Beach, La Mesa, Mission Valley, North Park each have their own unique personality. Check out our last blog: Neighborhoods in San Diego for help with making your decision.

#2 – Have You Considered Cost of Living?

Right now, San Diego is the 13th most expensive city in America, according to USA Today. In the world, we’re 40th most expensive city. Not to be a Killjoy, but when it comes to money, too many of us consider salary without considering the cost of living. A high cost of living can drastically reduce the effectiveness of your income, and reduce your long-term wealth. Before purchasing a home in San Diego, make sure that your foreseeable day-to-day expenses are manageable.

#3- Do You Have a Mortgage Approval?

Required by the California Purchase Agreement, buyers need to obtain a mortgage approval. Before you go shopping for that great property, get a preapproval letter from a reputable mortgage company or brank. Contact me if you need help with this. It’s important to verify exactly what you can afford rather than waste your time searching for a home that is over your budget.

#4- Higher Loan Limits in 2019

As you’ve probably heard, borrowers in San Diego will enjoy higher loan limits this year. Federal housing officials have increased the loan limits for FHA, VA, and conventional mortgage loans. This means San Diego home buyers could have more properties to choose from without venturing into jumbo mortgage territory. As of January 1st, Fannie Mae and Freddie Mac loan limits have increased to $453,100 to $485,350 for a single-family home purchase.

#5 – Transportation

If you don’t own a car, or if you just like to take public transportation to sporting events and giant beach festivals, you might want to consider whether there are bus stops or a trolley station nearby. The San Diego Trolley is a great option for getting around the city quickly and avoiding traffic. You’ll also want to consider traffic near your area, especially during rush hours, and whether an Uber or Lyft driver can get to your area without trouble.

#6 – The San Diego Real Estate Market is Competitive

Although sellers have an advantage, San Diego real estate market is competitive for buyers. In a San Diego seller’s market, it’s important that as a buyer, you are realistic about how assertive and responsive you need to be in order to get the house you want. Sleeping on an offer overnight might not be an option this year.

#7 – Have You Chosen a Buyer’s Agent?

In such a heated seller’s environment, an experienced buyer’s agent, who knows this city, can give you that competitive edge. Hire a BA who’s an expert negotiator. It can make all the difference between getting your offer accepted, or losing out to another buyer and having to start again.

#8 – Demand is Higher at the lower end of the spectrum

In San Diego, the local real estate market is particular active at the lower end of the spectrum. By comparison, pricier properties are taking much longer to sell. If you’re buying a comparatively low-priced home in San Diego in 2019, you should be prepared for competition. This is because there is more demand in the “starter home” price range.

In fact, the fastest homes to sell fall between the $250-$500,000 range. If you’re looking for a property in this price range, jump quickly, and save yourself the frustration of losing out to other buyers.

#9 – Increasing Your Low Credit Rating

When it comes to improving your credit, there really is no time to waste. A low credit score may not seem like a big deal until it’s time to leverage your credit for a mortgage. Increasing your low credit rating will help you qualify for a higher-priced home, at a lower interest rate, making it more likely to purchase your dream home.

#10 – Setting Your Expectations and Formulating Your Plan

To recap, homebuyers interested in the San Diego market, are buying into one of the hottest real estate markets in the country. Therefore, it is important that you become informed prior to your search. Hiring help is always a great idea. Contact me so that I can help you set your expectations, formulate a plan, and ace this process, to make the most of your efforts.

 

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Five Golden Keys… to Purchasing a Second Home

loansbyjoanna

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It’s hard to believe that the Holidays are already upon us. I know that buying a home right now is one of the furthest things on many of our minds right now. We’re thinking instead about Christmas gifts, decorating the house to get it ready for company, and not breaking the bank. I’m here to tell you that although mortgage rates are rising, they are still historically low, making this a great time to think about buying a second home. To make sure that your end-of-the-year-home-shopping a smooth process, instead of added Holiday stress, I’ve put together some key steps for you to follow:  

1. Find an Agent (Who Knows the Area)

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The best way to start the search for a second home is to hire a proper professional, and one who is familiar with your desired location. The necessary steps in the real estate process change over the years, so you might as well have someone on your side who’s well-versed in the nuances and can help ensure you get the best possible deal.

You always have the option to purchase a home without an agent’s help or put your house on the market as for sale by owner, however, if you’re not familiar with the buying or selling process, you may skip over necessary steps. An agent could provide you information about neighborhoods, market prices, and the pros and cons of particular properties. With their eye for the long-term value of a property, the agent could fill you in on price histories and how comparable sales have fared, as well as resale prospects.

As you may have found in purchasing your first home, agent services vary depending on the area you live in, price point, experience and availability of the agent and your ability to communicate your needs. While some agents will only help you get from point A to point B when finding and purchasing a house, others will attend inspections, tidy up the house in question, or even facilitate your entire move.

#2 – Determine Whether You Can Afford Two Mortgages

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First off, you have to qualify for a second-home mortgage, which will be an addition to any mortgage debt on your primary home. When you’re buying a home, mortgage lenders don’t look just at your income, assets, and the down payment you have. They look at all of your liabilities and obligations as well, including auto loans, credit card debt, child support, potential property taxes and insurance, and your overall credit rating.

You will need to make a down payment of at least ten to twenty percent, meet credit standards and debt-to-income requirements, and provide documents for income and asset verification. If you have a good relationship with the mortgage lender on your first home, that may be a good place to start in your quest for a second-home mortgage.

You can use a loan qualification calculator to check mortgage rates in your area.  Also, if you are thinking of tapping into your home equity you have built up on your primary residence to help pay for the second home, keep in mind that if you need that equity for an emergency, you may not be able to access it.

#3 – Factor in All Costs

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With trends like it is today, many second-home buyers are more interested in enjoying their property rather than simply obtaining a quick return on their investment. It’s important that you consider that you may still be away from the property a lot of the time, which usually entails additional costs, such as having a management company check the place in your absence for water leaks, frozen pipes or other problems.

Getting insurance for a second home may be more challenging than it is for a primary residence. This is because there are taxes that come with owning a second mortgage, and costs that will only apply to your second home. 

You should factor in costs that you may not have had to worry about with your first home. For example, if you are considering a second home on the beach, you’ll need flood insurance, in addition to regular home insurance. It has become more difficult to get flood insurance in coastal communities, and the cost has increased exponentially in some markets.

#4 – Consider Taxes and Tax Implications

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You may want to forget about deducting mortgage interest on a second home. If the home you were planning to buy is a vacation home, tax reform means you’ll pay more for your getaway.

While you could previously deduct mortgage interest on a second home as well as on a primary home — as long as your combined mortgages were under the $1 million cap — this is no longer permitted under the new rules. 

The Tax Cuts And Jobs Act caps to the mortgage interest deduction at $750,000. So if you already have a $750,000 mortgage and get a loan for a vacation home, you won’t be able to deduct the interest on the second mortgage. If you rent out your second home, you will have to consider additional tax ramifications, particularly if the rental period extends beyond 14 days a year.

The ban on deducting interest on a mortgage for a vacation home affects only new purchases, so if you already have a vacation home, you may want to hang onto it.

#5 – Consider Your Goals

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Whether you’re considering buying a second home to rent out, to move to and rent your old home, or what have you, there are some great benefits.

For one, you can sell your investment home and use the proceeds to buy another rental property without paying a capital gains tax. A rental property is a long-term investment, you could pay the mortgage with the rent income each month and pay off the mortgage without spending any of your own money. You will still be able to write-off the interest paid on your second home which is a huge plus.

When you’re ready to purchase a home, it may be beneficial to write out the goals you have for you and your family. Determine whether the second home will be a vacation home for you and your family, an emergency or guest home, or an additional income and for what purposes.

Know that writing down your goals isn’t the challenge. After all, with a word processing system, your laptop or even just pencil and paper, you can write down all the goals you like. The trick is coming up with effective goals you can realistically accomplish. Write down your needs (an adequate credit score, a substantial down payment and gross income that leaves enough for the house payment, etc.) and how you plan on going about fulfilling those needs.

I hope that all of this was helpful. If you have any questions or concerns, leave a reply below, as I’m always here to help.