Purchasing a second home is an opportunity for people to have a feeling of living in another part of the country (sometimes outside the United States). Some believe that it’s great investing a part of their savings in purchasing a second home or having another mortgage.
A report from the National Association of Home Builders (NAHB) showed that in 2016, there were over 7.4 million second homes or 5.6% of the total housing stock in the United States of America. Interestingly, places such as Texas, Michigan, New York, California, North Carolina, Arizona, Pennsylvania, and Florida (1.1 million) are regarded as the best states to purchase a second home.
Therefore, here are the most common mistakes made when purchasing a second home in the United States of America;
Do Not Assume The Price Of Every Property Is Negotiable
It is wrong to believe that every property’s price is negotiable. This is one of the greatest mistakes according to Jared Barnett, a compass agent working with homes between $2 million and $5 million around New York City.
Usually, property owners engage in different strategies when pricing their properties. It is priced at times with room for negotiations whereas the pricing is done to get multiple offers.
Therefore, a buyer can lose some properties they submit an offer for because they have tendered a lower bid when the home is put up for sale.
Going Over Your Budget
Everyone looking to buy a home wants something that fits their budget. However, buying a home that is beyond your budget could disrupt your future financial plans. Usually, everyone wants something a little above what they can afford and there is always a seller who will convince you into it.
Therefore, do not be tempted into this because the bank will always give you a borrowing limit that is based on your ability to repay.
So, purchasing a second home that is beyond your budget would get you exposed to financial shock with an increase in interest rate.
Ignoring Other Costs
Buying an additional home goes beyond just replacing a rental payment with a mortgage payment. Other forms of cost such as maintenance cost, property taxes, and utilities (which is expected to be more expensive) are involved.
Besides, people tend to ignore both insurance and property taxes when they are planning on the type of house they can afford.
Here is the gig; there is a need to inquire from the seller on the property tax and average utility costs and their insurance quote and budget. So, check if you can afford the property.
Putting Down A Nominal Down Payment
With the attitude of lenders making it difficult to access a mortgage, it is still very possible to own a house with as small as a 3% down payment – this implies that there will be little equity in your home when you move into the home.
Therefore, in the event of any eventuality and you need to sell the property, you will still be able to own more than you can earn from the sale after you factor in the closing cost. This usually results in a difficult situation.
And if it doesn’t happen like that, there will be a need to pay private mortgage insurance (PMI) monthly till your equity is more than the 20% mark which might take years. So, if it is not possible to put down 20% – the loan is technically risky. The PMI is the type of insurance that protects a bank if there is a default in the mortgage.
So, in purchasing a second home, there is a need to know if it’s wise to get home now if you are not able to raise a 20% down payment. Interest rates are low but if you have to borrow because you do not have much – this might be awash in the end.
So, you could target a lower monthly remittance and avoid years of PMI by aggressively saving to achieve the down payment.
Skipping A Professional Building Inspection
It is important to hire an independent and competent professional to help you check the home. Even if the home looks great, it would be foolish skipping inspection by professionals.
Since these professionals are trained in finding faults, they would be able to find major faults and come up with a comprehensive list.
The inspector is there to spot what others cannot see – such as checking if the chimney is in good shape or whether the cracks in the foundation will pose a big challenge. The inspector would check if there is any water damage and state if it will need urgent repairs.
However, this would prompt the buyer in seeking negotiation to drop the price of the property. Therefore, having the inspection done by a professional worth every penny.
Therefore, get recommendations from realtors or people who have acquired homes in that same area and hire a professional to inspect before closing the deal.
Buying A Home If You Plan Moving Again Soon
It could be frustrating writing a monthly rent check as a renter if you have no home equity to show for it at the end of the year. So, this is not the appropriate time in buying a house if you know that you would not be staying in that property for a few years with or without equity.
However, it would be a mistake to assume that you can buy a property and automatically sell or rent it out when you relocate from the property.
Before you go ahead purchasing a second home, ensure that you are ready for the responsibilities associated. Keep in mind not to make the mistake of assuming that the price of every property is negotiable, stay within the range of your budget, and do not ignore other costs.
Others are; not putting a nominal down payment, not skipping professional building inspection, and not buying a home if you plan to move away from it anytime soon.