Whether you’re buying a second home while you rent out your first home or you’ve decided to invest in a vacation home in Mammoth Lakes, the financing can look a bit different. Thinking through these four questions will help you decide if it’s the right choice for you.
1. Do you have plenty of cash reserves?
When you get into second home buying, underwriters will want to see significant cash reserves before they approve the loan. Sometimes they’ll want to see enough in reserve to cover six months of payments on both properties. And if you’re not buying with all cash, you’ll probably have to do a 25-30% down payment rather than the standard 20% for first/primary homes.
2. Is your debt-to-income ratio low?
Debt isn’t a bad thing, but most lenders will want to see a modest debt-to-income ratio — ideally between 36 and 42 percent. If the second home you’re buying will produce rental income, your chance of getting approved is higher.
3. Are you prepared to pay higher interest rates?
Second mortgages are considered more risky, so lenders tend to charge higher interest rates. Banks will also be looking at your cash reserves to see if you can pay for maintenance in addition to the new mortgage. Add in higher interest rates and your second home is likely to be quite a bit more expensive than your first home.
4. Are you ready for the additional costs?
We’re not done quite yet — there are other additional costs that come with buying a second home or vacation home in Mammoth Lakes. For insurance, you’ll probably be paying about 20% more than a primary residence if you’re renting out the property at all. If you don’t live in Mammoth Lakes, you might also need to pay for someone to manage your property. Regardless, you’ll have added expenses like maintenance and utilities.
If you’re financially prepared for it, buying a vacation home or second home can be a dream come true.
Learn more about buying a vacation home in Mammoth Lakes in my Ultimate Home Buyer’s Guide or contact me to chat more about vacation home financing.
If you liked this post, you might also like:
- Pros and Cons of Purchasing a Home in a Resort Community
- 4 Steps to Take Before Buying a Mammoth Lakes Vacation Home
- Buying a Vacation Rental Property in Mammoth Lakes: What You Need to Know
With winter just around the corner, here are five steps to take to winterize and protect your home from theft, water or other damage.
- Protect Your Home from Thieves
- Set your alarm systems, make sure they are in working order and have been activated.
- Secure external doors and windows with deadbolt locks. Install slide locks or other equivalent security locks on sliding glass doors or French doors.
- Store valuables that you are not taking with you in a safe deposit box or other secure offsite location.
- Turn Off Your Water Supply to Protect Your Pipes and Avoid Water Damage
- Consider completely turning off the water supply if no one will be in the home for an extended period of time. If your home is heated by an older steam heating system, consult with your heating professional to determine if it is safe to turn off the water supply for your particular heating system. Also, if your home is protected by a fire sprinkler system, do not turn off the water to this system.
- Drain your pipes of all water by opening the faucets, and flush your toilet to clear the water from the tank and bowl, then consider pouring antifreeze in toilet tanks and bowls to prevent any remaining water from freezing and cracking. Always use non-toxic antifreeze rated for plumbing systems.
- To help confirm that the pipes have been drained, consider having a plumber blow compressed air through the pipes.
- Keep the Heat On if Your Water Supply Stays On
- If you decide against draining your water pipes, keep the furnace running to help ensure the home stays warm and the pipes do not freeze.
- Set the temperature at 55°F or higher to help keep the interior of the floor and wall cavities, where the water piping is likely located above freezing temperatures. Keeping room and cabinet doors open also helps heat to circulate and warm the areas where pipes are located.
- Shut off the water to washing machines and dishwashers where possible, to avoid any leaks or broken hoses while you are away.
- Turn off the heat source and water supply to hot water heaters (if separate from your boiler).
- Consider shutting off and draining outdoor water faucets to prevent vandalism and freezing damage.
- Have a water flow sensor and low temperature sensor installed on your main water supply pipe and hooked into a constantly monitored alarm system or your smart phone.
- Perform Routine Maintenance
- Have your heating system inspected and serviced before winter. Have your fuel tanks filled before you leave, and ask someone to check on heat and fuel levels regularly while you are gone.
- Be sure to maintain electrical power if required to keep the heating system running. If electrical service to the home is to remain on, consider having a licensed electrical contractor inspect your main electrical panel, wiring and outlets, if necessary. This way, they can repair or replace anything that may be defective.
- Have your roof inspected before you leave and clean your gutters to help prevent ice from building up.
- Unplug all unnecessary appliances before you leave. Make sure you can retrieve messages on your home answering machine or voicemail so it does not indicate FULL or unattended when someone calls.
- Prepare for Emergencies
- Notify the police department that the property will be vacant, and provide emergency notification numbers.
- Install smoke detectors on at least every floor (preferably tied to a constantly monitored fire alarm system so the fire department will automatically be notified in case of alarm), and confirm that the sensors and system are tested regularly.
- Ask a trusted friend, neighbor or relative to keep an eye on your home and be available in emergency situations. Give them access to your home so they can regularly monitor heating, electrical and water systems.
- If the weather turns frigid, have them also check the roof for ice dams and inspect for leaks inside. Make sure they have your contact information and a list of local contractors they can reach if repairs or service are needed.
Sonja Bush is a local licensed Resort and Second Home Realtor ready to answer any questions you may have about winterizing your home or finding a vacation home in the Mammoth Lakes area. She can be reached at 661-979-9000 or by email at [email protected].
With the end of the year nearing, it’s time to get all your tax options in order. With a second home, you have tax items to consider that you wouldn’t normally have with a first home.
Second home tax deductions:
1. Mortgage interest. You can deduct the interest if you itemize deductions. Your deduction might be limited if either of these is true:
a) Your mortgage is more than the fair market value (FMV) of your home.
b) The mortgages on your main home and your second home are more than:
i) $500,000 if filing single
ii) $1 million if married filing jointly
2. Real Estate taxes. Interest on a home equity loan or line of credit. This applies unless either of these is true:
a) The mortgage is more than the Fair Market Value of the home. This is without mortgages and including grandfathered debt.
b) The home-equity debt on your main home and second home is more than:
i) $50,000 if filing single
ii) $100,000 if married filing jointly
3. Renting your second home
a) You don’t have to report rental income if both of these apply:
i) You use the home as a residence.
ii) You rent it for fewer than 15 days during the year.
iii) It’s considered a residence if you or a family member uses the home for personal use for more than the greater of these:
(a) 14 days
(b) 10% of the number of days you rent the home at fair rental value
You can’t deduct expenses you can attribute to the rental. However, you can deduct interest and taxes if you itemize your deductions.
If you use the home as a residence and rent it for 15 days or more, report the rental income. You can deduct your interest and taxes as described above. You can deduct other rental expenses, including depreciation. However, you can only deduct up to the amount of the income minus the deductions for interest and taxes. Carry over any rental expenses not deductible under this rule to the next year. Then, they’ll again be subject to this limit.
If you don’t use the home as a residence, the above rules don’t apply. Report your income and expenses the same as you do for other rental property. Source: H&R Block
Stay tuned for more tax rules next week.
Contact Sonja Bush for help buying selling or renting your second home. She can be reached by phone at (661) 979-9000 or by email at [email protected]
You purchased a second home or vacation home with the purpose of renting it out for additional income. You’ve lived in it a while, decorated it the way you want, furnished it with durable furniture ready for others to enjoy. Now it’s time to get it ready to rent out.
1. Make the home as livable as if you were living in it. Your tenants want to feel just as comfortable as you, so invest in good quality, durable furniture. Remove any furnishings that don’t exude a vacation vibe or experience. Make sure seating is comfortable and lighting is good and sets a mood.
2. Remove all personal items. Install in a locked cabinet or pantry, even storage, to put your personal irreplaceable items in when you are not there. Remove anything personal to avoid getting damaged.
3. Stock the home with basics for a full house. If your home sleeps six, then provide two of everything for each guest. Two bath towels, hand towels, linens, bed sets, plates, bowls, cups, glasses, etc. Don’t forget to provide a TV, stereo, DVD player and coffee maker. All the normal comforts of home.
4. Hire local reliable property management services. You don’t want your property manager to be out of town when you are out of town. No one will be watching over your investment. Make sure your property management company is local, close to the property if not on-site, and only a phone call away. They are your eyes and ears while you are not living in the property. Get references from others who have used them in the past.
5. Set your visits on the calendar now. If you want to be assured your home will be available when you want to visit, make sure you put that on the rental calendar now so that it doesn’t get booked when you want to enjoy it. Even if it’s only tentative bookings, at least something will be down in writing and you can always change it later.
Sonja Bush is a Resort and Second Home Property Specialist, ready to help you find, purchase, or sell your Vacation Home or Second Home. Call her today at 661-979-9000 or email her at [email protected] with whatever your Second Home and Vacation Home needs are.
Thinking about buying a second home? Below are seven steps to consider when making your decision.
1. Decide whether it makes financial sense – Is it for an investment, a vacation home, or both? Start building up cash reserves now.
2. Decide where and what type of home to buy – Consider resale value, convenience and amenities, property tax rates, the availability and closeness of medical care.
3. Look at the tax implications – You’ll now have income tax on top of property taxes if you choose to rent out the property. If you’ll be renting out a vacation home, how long you stay at the property can change how much you’ll owe in income taxes. If you rent out the home for 15 days or more during the year, you have to report all rental receipts to the IRS as income, but you can also deduct operating expenses such as utilities, repairs, insurance and management fees against that income.
4. Prepare short term cash and long term financing – If you are not purchasing your second home or vacation home with all cash, you’ll need to come up with the down payment (normally 20% of the purchase price) and loan for the remaining balance.
5. Consider non-traditional financing – Borrow from family and friends, get a partner in the property to share with, and look into whether or not the seller would be willing to carry a second mortgage for a few years.
6. Prepare if you will be a landlord – Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved.
7. Protect your second home:
a. Get a home inspection
b. Purchase title insurance, hazard insurance and liability insurance
Sonja Bush with Mammoth Village Properties is ready to help you navigate the purchase of your second home or vacation home. Call her today at (661) 979-9000 or email her at [email protected].
Buying a second home can be both exciting and overwhelming. Many second homebuyers start out on “vacation high” where they fall in love with the place they are enjoying for a few days holiday. Once the decision is made to make the dream a reality, anxiety can set in. The best way to relieve the anxiety is to follow these simple steps.
- Decide how much home you can afford.
As a homeowner, you know there is more to owning a home than just the mortgage. Even if you are paying cash, you need to consider other costs. For a vacation destination these costs may be different than the costs associated with your primary residence. In addition to property taxes, insurance, maintenance, utilities and HOA’s (home owner association dues), there could be other costs based on the location. For example, in a winter location like Mammoth Lakes, California there could be costs for snow removal, heating (propane, firewood, etc).
- Develop your vacation home wish list.
Where do you want to be and what is most important to you? For example, is being in walking distance to shopping and restaurants important or is being able to ski in/ski out more important. Prioritizing your desires in advance is helpful. It is easy to get caught up in the moment when viewing property and keeping addressing your priorities in advance will keep your property search focused.
- Understand the costs of buying in advance.
Communicate with your Realtor in advance your financial situation. In some resort projects traditional financing may not be available and third-party or private lenders may be the only option. This could require a larger down payment or even higher interest rate. In addition, there may be other costs common in the area.
- Be ready to make an offer.
If financing, this includes getting your credit in order and obtaining a prequalification approval. Get a free credit report (you are entitled to one annually from the major credit bureaus) and make sure the information is accurate. Your Realtor can recommend local lenders that have experience lending in the resort community. Talk with the lender to get a prequalification letter and understand your loan options. If paying cash, make sure you have “proof of funds” documentation to support your “all cash” offer.
A qualified Realtor can help you follow these steps and make the process flow smoothly.
Here are five key tips to assess vacation choices, whether for personal use or an investment.
1. Understand your budget. If not paying all cash,qualify for a loan before looking. Understand how much discretionary income you will need. You will need to cover monthly mortgage, real estate taxes, assessments, regular maintenance, homeowners’ insurance, furnishings, an emergency fund for disasters and major repairs.
2. Determine how often you will use it. The amount of time you will spend in a vacation home depends on the individual and family and the investment and rental potential. Some think they need to go every weekend to justify the expenses, while others are fine just visiting in summer or winter.
3. Pick the right location. What makes one location more appealing to buyers than another largely depends on your interests. In Mammoth Lakes, requirements are as diverse as “on the golf course” to ski in/ski out or simply easy access to the town shuttle.
4. Understand upkeep. A single family home requires more maintenance than a condo. Granted there will be no monthly Home Owners Association (HOA) dues but there are still costs involved.
5. Research rental potential and costs. If income is your goal, buyers should know that rental demand and dollars fluctuate with the economy, weather, location, number of bedrooms and bathrooms, and amenities. Understand rental options – will you be using an onsite property manager, a third party company or VRBO (vacation rental by owner). Each have pros/cons and different costs.
Understanding these tips coupled with the advice of a qualified Realtor® will lead to success with a vacation property.
According to real estate mogul Barbara Corcoran (you might know her from Shark Tank) if you are in the position to consider making a down payment on another property, now’s the time to do it. According to Corcoran, “It’s the smartest thing you can do right now,” adding that the second-home market is “the last area you can still get a steal of a deal.” But if you’re thinking of taking the plunge, Corcoran advises you act fast. “In the second home market, the homes are abundant but starting to shrink up.” As for Mammoth Lakes specifically, inventory levels are extremely low for both condos and single family homes.
If you decide to make a second home purchase, be sure and avoid some of the biggest mistakes made by second home buyers.
Buying Where Your Friends Live: Too often, Corcoran says, people fantasize about vacationing with or near friends and end up making a purchase that isn’t right for them.
Not Having a Budget: Set a budget and stick with it. “Look over your budget,” Corcoran says. She also adds that it’s a smart move to make a low bid on a property that is out of your price range, especially if it has been languishing on the market for months. “People who have the nicest homes always overprice, and it just sits on the market,” she adds.
Focusing on the Wrong Amenities: Don’t buy into a community because of its amenities. If you’re not a tennis player now, you won’t become one because your new development has a court. “Most people generally won’t use the extra stuff and they get blinded by all of that,” Cochran explains.
For previous articles, visit www.sonjabush.com
For more information on Ms. Corcoran, visit www.BarbaraCorcoran.com