Save Money on a Second Home Mortgage

picture of model house and person signing second mortgageWhether you are shopping for a vacation or rental property, it's never easy deciding when to step back into the housing market. In every market, there are challenges, and there are opportunities.

As encouraging — if modest — signs of an economic upturn appear, many homeowners who have postponed purchasing a second home are taking a second look at opportunities in the market to save money while building equity.

Is a Second Home Still an Investment?

Facebook It depends upon who you ask. And what you're looking for in a second home. If the purpose is a vacation getaway, many experts suggest not thinking of it as a property investment but rather as a personal resource, a luxury you'll enjoy with family and friends for years to come. In the past 40 years, the annual gain has been about 6.4 percent nationwide, according to the National Association of Realtors. Factor in the costs of property taxes, fees, maintenance, an 80 percent mortgage and other incidentals, and it's up to the buyer to decide if a vacation home is a worthy investment or not.

As an indivisible, undiversified asset that includes expensive transactional costs, a home is certainly a particularly restrictive type of investment. If the job market is good, house prices usually do well; when the market does poorly, a house's value can fall right when you are most likely to need a financial cushion.

Double digit declines in some areas present an opportunity to walk into equity on the right property. For those who have been holding off purchasing a second home, the decline in the housing market over the past few years presents a chance to save money while gaining the house of their dreams.

Financing a Second Home

Everyone knows securing a loan for a second home can be more challenging than for your primary residence. Needless to say, a good credit score, substantial income and liquid assets are all important factors.

In the case of potential rental properties, your lender will likely want to see a cash flow statement that proves you can generate income from the property. They will also want to determine the property's condition. Regions Bank provides a variety of mortgage calculators to help you make the right financial decision.

Rental vs. Vacation Property

It makes a difference if you are renting the second home or using it as a vacation property. If you rent a vacation home part-time, there are tax benefits. If a property is used as a second home and rented out for fewer than 15 days a year, the owner is not required to report the rental income.

A property's rental history, occupancy rate, and net rental revenue are all good indicators in weighing your decision. Still, location, arguably, is more important than ever since the vacationing public is expecting to find bargains in rental properties in the current climate.

Lifestyle Value vs. Economic Value

There are signs some investors are beginning to think the bottom has come into view in the housing sector, increasing the appeal of a second home for vacation or rental purposes. However, unlike just before the housing market deflated, the current environment doesn't look as conducive to purchasing a second property in order to resell it in a short period of time. Most investors expect their equity gains be realized over the long term.

The reasons people purchase a second home vary greatly. Some see the equation as a lifestyle value versus economic value. But remember, whether financing a second home or purchasing rental property investments, prospective homebuyers need to do their due diligence.

Tips icon
  • Save Time - Simplify your household cleaning by filling a bucket with all the basics you need to be carried from room-to-room like glass and bathroom cleaners, sponges, brushes, baking soda, vinegar, hand towels, rubber gloves and the like.
  • Save Money - Call it "recession chic" if you like, but trying to limit most purchases — from clothes to cars — to when the items are on sale is a relatively painless way to stretch your expenses.
  • Save for the Future - When your child or grandchild earns money for tasks or gets money for Christmas, stock it away in a Savings for Minors account. It will ensure children learn the importance of saving.
  • Save Time - Spend time to save time. Sound odd? Whether it's taking better notes during meetings, learning a new skill, or making to-do lists, sometimes investing time to simplify or streamline tasks is the most efficient way to save time in the long run.
  • Save Money - During tax season (and year round, too), the more organized you are, the easier and more quickly your tax preparer can file your taxes. And that means money saved — and a faster refund in your bank account.
  • Save for the Future - Spend less that you earn. It sounds so simple, but for many of us, it's not. If you spend more money than you make, the borrowed money that covers the difference — often in the form of credit cards or a loan — comes with interest which can quickly add up.
This information is general in nature, is provided for educational purposes only, and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Regions neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.