You’re buying a second home? Congratulations! There’s a dozen different reasons to buy a second home–even more if you’re buying in the Santa Ynez Valley. Maybe you’re establishing a permanent vacation spot, investing in a rental, or looking to renovate and flip.
Regardless of what’s ahead for you, buying a second home is a big financial step with different considerations than you might’ve expected. Depending on how you use the property, your mortgage options will shift and change–be sure you’re prepared!
Why buy a second home?
Buying a second home in Santa Barbara or the Santa Ynez Valley can be your next big step towards building long term, sustainable wealth. And there’s more than enough reasons to pull the trigger:
–You want to invest in real estate and develop a passive income stream with a home you can rent out
–You’re ready to stop booking hotels and AirBnbs at your regular vacation spot
–You’re purchasing a nearby home for your parents to live after they retire
As you kick off the process of buying your second home, be clear with your lender about your plans for the home, as this will have a hand in your financing options. Depending on what’s in store, your real estate agent and your lender may be able to help you figure out a housing option that better suits your plans for the future.
Get started on your second home purchase
Buying a second home includes many of the same steps you’ll remember from purchasing your current home. But the costs associated with a second home go well beyond another monthly payment. The mortgages you can use to buy a second home, and their qualification requirements, are different, too.
Remember what it was like to purchase your first home? The same steps apply when buying your second home too, but it’s important to remember that your costs and mortgage qualifications may look a lot different than they did before.
Have you tallied up all the costs?
Because you’re already a homeowner, some of these items may be familiar to you already. It’s still important that you consider them carefully, as each will represent a new cost to factor into your budget.
Visiting Your Vacation Home: What’s worse than a vacation home you can’t afford to travel to? Ensure you’re making a savvy investment by budgeting the costs to travel to your second home when it’s time for a well-deserved getaway.
Tenant Vacancy: If you’re looking to rent out your second home, ensure you have enough funds socked away to pay your bills in the event of a long-term vacancy or a tenant eviction moratorium (fingers crossed no one will have to run into this again!).
Homeowners Insurance: Depending on whether this new purchase will serve as your primary residence, you may be spending more on your monthly homeowners insurance. You’ll also need to consider your plans for the space, as insurance needs will change whether the home is being occupied or not.
Water, Sewer, Garbage, And Other Utilities (Plus Maintenance!): The good news? If you’re renting out your home, your tenant will be on the hook to pay for the utilities. On the flipside, if the home is unoccupied for a period of time, you’ll be responsible for the costs of maintaining the house on a basic level–landscaping, energy, and any security needs you may have (considering the home will be empty for a time).
Lastly, before you take the plunge on a second home, think long and hard about your financial goals. Have you made the progress you’d like to see in your retirement savings? Do you have other debts that could use your attention (and funds) first? Think carefully about whether a second home would keep you from making progress in other areas where it’d be wiser to focus your energy in the long run.
Time to finance!
Unless you’re a cash buyer, it’s time to have a heart-to-heart with your lender. Be open and honest about your plans and intentions with your new purchase. They’ll be able to direct you to the type of mortgage that’ll best suit what’s ahead. It’s also important to note the variety of rates, terms, and qualification needs for the different types of mortgage loans out there. Whether you’re looking to use a conventional loan, a jumbo loan, or any other nonconforming loan for your second home, there are different stipulations for each. It can be a complicated process, but a seasoned home loan professional will be able to support you through every step.
Here’s how to qualify for a second home mortgage:
Whether it’s a vacation home or an investment property, lenders see second homes as riskier. The requirements for minimum credit scores are generally higher, and maximum debt-to-income ratios are lower than for a primary residence.
The bottom line? No matter what your plans are for your second home, lenders see an investment like this as a riskier bet. As a result, the expectations to secure your loan will be even higher than they were before. Your lender will request a higher credit score, fewer debts, and a bigger down payment. This can be a hurdle to overcome in the beginning, but you’ll likely enjoy a better rate and a lower monthly payment in the long run.
Be sure the qualification process is a positive experience for you by researching your local lenders. Do your due diligence to ensure you’re getting the best deal you can–there could be promotions and bonuses out there you’re missing out on.
Team up with a real estate agent to find your dream Santa Barbara home!
Finally, the fun part! Whether you’re looking for a vacation home off the beaten path or an income-producing rental property in your neighborhood, you’ll want to work with a real estate agent who’s local to that area.
Wherever you’re starting your search in the Santa Ynez Valley, it’s important to join forces with a local real estate agent who’s well-versed in the market. If you’re searching for your next property from outside the area, a savvy real estate agent can get familiar with your wishlist and keep their eyes peeled for the perfect property.