A second home is an addition to your investment portfolio. You can purchase it as a rental investment or a vacation home that you can still rent out when using it. But like any other home purchase, you will most likely need financing for it. When looking to buy a second home, there are a few things you need to keep in mind.¹

Second Home Mortgage Considerations for Public Workers

A second home can serve as your private gateway, a place for family retreats, or a source of rental income. The increased work-from-home opportunities are also making second homes popular as a change of work scenery option. These are the considerations you need to factor in when looking for a second home.

Whether You Can Afford It

The first thing is to consider your financial capability to purchase a second home. Ideally, you need to have fully repaid your first mortgage or substantially paid the same. If you’re still repaying the first loan, the repayments need to be timely and consistent. The interest rates and down payment for second mortgages tend to be slightly higher than the first mortgage interest rates.²

You have to show proof to the financier that you can afford to pay for both mortgages and have money to spare. 

The Purpose of the Home

When buying the home as a vacation property for personal use, the associated ownership expenses might be tax-deductible. The mortgage interest is deductible under similar terms to your primary residence, as long as you don’t rent it out.

When you buy the second home as a rental property, the IRS and mortgage lenders classify it as an investment property. The tax implications of rental properties vary from those of vacation homes or primary residences. The benefit of owning a rental property is they act as a passive source of income that allows you to get tax deductions that help offset ownership costs. 

Choosing Down Payment and Loan Terms

The fixed-rate mortgages come in the typical 15 or 30 year repayment period. It depends on what you can afford to pay. The interest rates for the 15-year terms are generally lower than their 30-year term counterparts. Keep in mind that you may need to refinance your first mortgage for reduced monthly repayments to enable you to afford a second mortgage. 

You can also consider taking out a home equity loan and utilizing it toward the second home’s down payment. This decreases the mortgage amount on your second home significantly. 

Second Home Mortgage Considerations

The decision to purchase a second home is a huge financial decision, but the primary consideration is whether you can afford it. Look at your first mortgage and your general financial standing and ensure that you can carry the financial obligation in the long term. However, you can get yourself a vacation or rental property with a sound financial strategy and planning.

 

“About Mountain West Financial and the CalPATH Home Loan Program

Mountain West Financial is the exclusive lender offering CalPATH, the #1 home loan program for Teachers, Police Officers, Firefighters, and other public employees who serve our local California communities.

You may contact our CalPATH Hotline @ 800-310-7577, seven days a week from (8:30 am to 8:00 pm). A CalPATH advisor will be standing by to answer (any & all) questions you may have about the home buying or refinance process.

We look forward to working with you soon!

Sincerely,

Joe Moore

Branch Manager”

 

Links to External Sources:

  1. Second Mortgage: What It Is And How It Works https://www.forbes.com/advisor/mortgages/second-mortgage/
  2. Buying a second home? Don’t overlook key tax considerations https://www.cnbc.com/2018/05/03/buying-a-second-home-dont-overlook-key-tax-considerations.html