Is buying a second home any different than buying your first?
Dear Mike: My daughter and her husband have been renting in the Vail Valley for a couple of years and are looking to buy a home. My wife and I are also interested in buying a second home that will allow us to be near my daughter and her husband but still have our own place. Are there differences between the primary and second home buying process?
Dear home buyer: Lucky for you and your family to be in a position to purchase homes and be close — but far enough away — to see each other and enjoy all the benefits of living in the Vail Valley. While the process and key components such as having pre-approved financing, good credit scores and a clear idea of your budget and price range are essentially the same, there are contributing factors that are more — or less — significant for primary and secondary home buyers.
When considering the type of home, such as a single residence, condo or duplex, it’s important for primary and secondary home purchasers to also factor in potential HOA dues, which can vary from $150 per year up to several thousand dollars per quarter in the resort areas. Both types of buyers should work with their lender to determine the types of available loans and monthly carrying costs. This can then translate into a solid pre-approval, which will typically help give tighter control for the purchase price. First-time buyers should also inquire about available programs that may offer a lower down payment or other assistance based on financial need.
Be sure to also ask if the lender will — or can — include taxes and insurance in the mortgage payment/loan. This is more important for primary buyers who tend to be working on more limited incomes so having one price that is inclusive can help avoid the quarterly tax bill or annual insurance that may get overlooked. With regard to taxes, secondary homeowners need to be aware of the state and local tax caps and tax issues relative to their home state tax structure. Since the SALT cap is a federal tax limit of $10,000 for any home deductions (primary and/or secondary), if you live in a high real estate tax state, you may be exhausting all your home write-offs with your primary residence.
Interest rates are still at historically low levels. However, the Dodd-Frank legislation passed after the financial crisis has made ratios for lending more stringent. As a result, credit scores can present major variables in lending approval.
Generally speaking, a credit score of 780 or higher is going to give you and your daughter the most favorable rates, coupled with any other assets you have to protect your loans in the event you default. This can become particularly challenging for first-time buyers who may not have a lot of other equity or savings. It is typically less of an issue for secondary home buyers since you have another residence and probably more significant savings and investments the bank can use as collateral in the event of a default.
Location and amenities
These are two areas that carry more or less weight for primary vs. secondary homeowners. Younger first time home buyers typically want and need to give more weight to a home’s location relative to schools and commute time for work. Neighborhood demographics can also be more significant if it does or doesn’t include young families with children or an older demographic depending on the ages and lifestyle of the buyer. Secondary homeowners are also more likely to want to consider maintenance-free landscaping, secure parking and other lifestyle amenities they are willing to pay for vs. a primary homeowner who is more willing to do maintenance and prefers community centers and programs for their family and lifestyle needs.
Good luck with your search!
Mike Budd is a 19-year Berkshire Hathaway HomeServices Colorado Properties veteran, specializing in residential and commercial real estate, including being named Vail Board REALTOR of the Year in 2016. A Vail Valley resident for 21 years, Budd has seen the Vail Valley evolve into one of the most desirable resort/lifestyle communities in the world. Contact Budd with your real estate questions at email@example.com, 970-376-4511 or http://www.mikebudd.com.