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Turning your dream of owning two homes into a reality requires careful consideration despite the allure of low mortgage interest rates and that extra cash lying around waiting to be invested.
 | As you decide whether a second home is right for you, take a few moments and consider the following pointers and reminders: |
- Thoroughly review your ability to pay for a second home. Asking yourself if you can afford a second home is particularly important if you're already carrying a mortgage on your first home and you don't plan to generate rental income from your second home.
- While figuring out your financials, keep in mind the investment potential of the new home. If your second home is in a coastal area where property appreciation is consistent and high (say, in the 15 to 25 percent range annually or every couple of years), for example, the financial returns may be significant. Also your home's rental potential can increase its value. If you so desire, rent can start pouring in during those months when you're not using the place.
- Understand the main financial differences of buying a second home compared to your first home. Most second-home loans require down payments of 15 to 20 percent, and some mortgage companies require higher down payments on second homes, compared to first homes. Some lenders might demand up to 50 percent of the total sales price. How much you'll be asked to come up with depends in large part on your credit rating.
- Know that after the sale closes, you need to be able to afford the monthly mortgage payment, utilities, and any additional upkeep or related fees. Remember, owning and maintaining a property isn't cheap. You must maintain the property even though you're not there year-round.
- Factor in tax obligations. Have a financial advisor or accountant clearly explain the tax considerations you'll incur well ahead of your closing day. If you decide to rent the unit when you're not using it, you need to know how all that additional taxable income will affect your financial picture.
- Look for a home and area that boasts the kinds of amenities that will make you and yours happy and comfortable. Are there certain activities that you can't live without, even when you're on vacation? The key is to make sure you know which amenities you want before you buy, and look only for those homes that have the features or that provide easy access to them. For example, you may desire a house with a pool and basement game room, and your spouse may want nearby nature preserves or outdoor recreation areas.
- Think about your social and family lifestyle. If having friends and family — a built-in community — close by is important, consider areas that you have frequented over the years.
- Choose a climate that matches your needs. If you're planning to use your second home year-round, be sure that the location experiences the weather you enjoy throughout the year.
- Figure out the ideal travel distance, by car or plane, to your second home. How often do you plan on visiting your second home? If, for example, you detest flying, choose somewhere within a few hours' drive. If, on the other hand, driving is your nemesis, then go for something very close to home or far enough away to justify the cost of a plane trip.
- Think about your second home's long-term use. Will you be renting it? Then make it easy on yourself and pick a place that's popular for vacationers and renters. Will you retire to the home? Then make sure the home and its surroundings feature all the amenities and extras that you need to be comfortable and content.
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