A lot of people choose to have vacation homes in and around the Arizona, Scottsdale, and Phoenix area but what are the logistics about actually buying a second home? The rules are slightly different than if this was an owner-occupied or primary residency. So here’s what to know about buying a vacation home in Mesa and Arizona in general.
#1. Make sure you know what you can afford.
Are you ready to take on a second mortgage? Perhaps you’re buying an all-cash, but even then you’ll need to know how much you can afford. There are a lot of different costs involved and some are slightly different than if this was your primary home. There are expenses for principal, interest, taxes, and insurance and don’t forget if you are several hundred miles away or even thousands of miles away from your vacation home, you may have additional expenses for those looking after it. Ask about insurance and the cost of owning a vacation home such as maintenance and repairs, additional furnishings, and management or vacancies if you plan on renting it out when you’re not using it.
#2. Understand the taxes.
In 2007, the real estate taxes were radically transformed and mortgage interest and property taxes don’t provide the same tax-deductible benefits as they always once did. If you rent a unit to others that you use as a residence yourself, you may have certain rental expenses that you can deduct. It’s important to talk to a tax finance specialist to make sure that you understand all the costs and taxes involved when owning a second home or vacation home, especially if you plan on renting it out.
#3. Talk to a local lender.
You may know Bob down at your bank, his kids, and his schedule, but if he is not in the area in which you’re buying your vacation home, he may not understand implications and proper loans. You’ll want to find a local lender in the town in which you are buying the vacation home. A second home carries more risk than a primary residence and if something should happen, most borrowers will plan on keeping up with their first mortgage rather than their second so it’s important to find the right plan and a local lender that understands buying vacation homes.
More: 3 Things to know Before Applying for a Mortgage
#4. How will you finance it?
The local lender will definitely help in explaining all possible lending options but FHA and VA financing cannot be used for a vacation home generally. Conventional financing is typically the way to go but a second home must be occupied by the borrower for some portion of the year, it must be a one unit dwelling, the borrower must have exclusive control over the home, it cannot be a timeshare, it must be suitable for year-round occupancy, it must not be subject to any agreements that give control to another management firm other than a property manager, and rental income cannot be used to qualify the borrower.
Lenders typically look at four things when determining your finances, debt to income ratio, your credit score, down payment, and any reserve funds. As long as you have money in the bank, can make a substantial down payment, don’t have a lot of debt and have a decent credit score, chances are you can apply for a second home loan.
#5. Vacation home mortgage rates may be different.
Interest rates on vacation homes are typically higher than primary residences and can be up to 1% higher so this can really affect your monthly payments.
#6. Work with a local agent that understands vacation homes.
Because I work with hundreds of other buyers agents and listing agents in the Mesa Arizona real estate market I understand the logistics when it comes to purchasing a second home or vacation home, even if you’re planning on renting it out. A local expert not only will have an in-depth understanding of the current market but will have access to hundreds of potential properties, can explain schools, shopping, and medical care amenities as needed, and any plus or minus is on a particular neighborhood.
For more information on buying a second home or vacation home in Mesa, please don’t hesitate to contact me. This is what I do and I would love to help you find the perfect second home or vacation property around Mesa today.