You’ve saved enough money for retirement to take care of your family. You’ve worked hard over the years, and the time is right to buy your dream vacation or second home.
According to real estate agents in Nanaimo who work with second home buyers, there are five important things to know about buying a second home in British Columbia:
1. Does your budget really allow for a second home?
Ideally your first home is already paid off, or you’ve got a lot of equity built up. Lenders view financing for second homes similar to the way they look at financing investment property. Buying a second home with a loan usually means paying a slightly higher interest rate with higher monthly payments. Down payments on second homes can be larger too – usually between 10% and 20% of the total purchase price.
2. Vacation property or rental home?
If you plan on renting out your second home part of the time be sure to check with your financial advisor on the tax implications of having a rental home. Depending on your personal situation there will likely be both pros and cons. If your second home is partly for rental use, ask yourself if you’re ready to be a landlord: the extra costs of maintaining a rental property, handling tenant repairs, and paying for a good property manager can add up very quickly.
3. Is your real estate agent familiar with second homes?
Buying a second home is much different from buying your main residence. Early on, it pays to speak with real estate agents in Nanaimo that specialize in working with second home buyers. A good second-home real estate agent will give you valuable insights into the market for second homes in Nanaimo. Plus, she’ll be able to provide information on important factors when investing in a second home – things like amenities, neighborhood safety and crime reports, and market prices.
4. Does the second home payment plan match your budget?
Three common ways to finance the purchase of a second home are with either a 15-year or 30-year mortgage, or with a home equity loan. If retiring isn’t in your immediate future, taking out a 30-year loan for your second home will make your monthly payments lower. If you plan on retiring soon, or if you consistently have extra monthly income, a 15-year mortgage means you’ll pay less total interest, but your monthly payments will be higher because of the shorter term of the loan.
5. Can you pay extra cash for your second home?
Paying extra cash for your second home - or taking out a home equity loan on the house you have now - are two other ways to handle the purchase of a second home in Nanaimo. Down payments on second-home mortgages can be 10%, 20%, or even more, so be sure to have enough of a cash reserve before and after you invest in your second home. Taking out a home equity loan on your principal residence is another way to make buying a second home more affordable by making a bigger down payment on your second home.
Takeaway tips for buying a second home
Buying a second home in Nanaimo BC can be a wise financial decision. Before deciding to invest in a second home always:
- Research second-home loans to make sure your budget can withstand the monthly payments
- Understand the financial implications if you rent out your second home part of the time
- Make sure you can realistically afford buying a second home
- Speak with a real estate agent in Nanaimo who specializes in helping people buy second homes