Saving for a second home can be a daunting thought, but can also come with a lot of excitement. For many, retiring somewhere warm or becoming “snowbirds” is an incredibly attractive way to view their golden years. But how can you be sure you know what you’re getting into, and how can you save enough money to manage the extra expense?

Before you decide to take the plunge, be sure to ask yourself these questions:

  1. How much will a second home truly cost me? Aside from the mortgage, utilities, property taxes,and insurance, you’ll need to maintain a second home. And if you’re not living there full-time, you might not see problems until they’ve become quite large. On top of that, you’ll likely need to hire someone locally to fix the problem or oversee the repairs.
  2. Have I saved enough for the things that are more important to me than this second home? If you feel you’ve put enough away for retirement, your children’s college funds, and other expenses you feel are more important, only then should you consider a second home.
  3. Am I willing to rent out this home when I’m not using it? If you answer yes to this question, your insurance company might charge you differently, and your mortgage lender may require more of you.
  4. Is this really where I want to land? Buying a second home is a huge decision. Before jumping into such a large purchase be sure it’s in the right location, is the right size, and truly will fit what your goals for it will be. A home purchase is a difficult one to reverse, so be absolutely positive about it before you sign on the dotted line.

If you’ve answered these questions positively and have decided a second home is right for you, it’s time to save up! Here are some of our best tips that our clients have used to buy their second homes:

  1. Save up some cash: As with most home purchases, you’ll likely have to make a 20% down payment to buy your home. If you disclose to the lender that you’ll be using your second home as a rental property, that down payment may increase. Make sure you can access your money without having to pay penalties or deal with a waiting period.
  2. Pay down your debt: Most mortgage lenders will make sure that your debt-to-income ratio does not exceed 36%, including the second mortgage you’re applying for. The less debt you have when you go to the table, the better.
  3. Know the real costs: Make sure you have mapped out every single cost that comes along with your second home – mortgage, taxes, utilities, HOA, insurance, repairs/maintenance, property manager, travel to/from the home – and make sure you have an emergency fund just for that home.
  4. Find the right lender: Getting the right mortgage at the right rate from the right lender isn’t always an easy thing. Make sure you shop around and get the best possible loan for your second home.
  5. Get insured: Since you won’t be living in your second home full-time, getting the right insurance is going to be critical. Will you need disaster insurance or anything special based on your home’s location? Talk to a trusted property insurance advisor to discuss the right fit.

Over the years, we’ve helped many of our clients reach their goals, including the purchase of a second home. We’d love to help you achieve what you’ve always dreamed of. Feel free to reach out to us and one of our financial advisors will contact you and give you a second opinion of how your financial plan is helping you reach your goals.