Branching out in order to buy a second home is a big decision. There are a number of great reasons to purchase a second home, and they all begin with a question about increasing financial security for yourself and your family. But buying new property always comes along with some big questions and a certain degree of risk. Minimizing these issues requires a serious amount of research and critical thinking in order to make the best financial decision that you can.
1. Think about the purpose of your buy.
Knowing why you are buying is a crucial first step when considering buying a new home. You will likely need to take out a second mortgage loan in order to take on the ownership of new real estate property. So thinking through your purpose is critical to making the best decision before locking yourself into a new monthly payment obligation. Many homeowners choose to buy a second home as a smart investment but forget that this can work in one of two opposing ways.
You may be eying up a second property along with a real estate agent and financial advisor as an investment opportunity. Often times, this home’s equity is less than that of the current value of your home. But flipping this relationship on its head can give you the best of both worlds when it comes to home buying. Searching for a property that you can move your family into — an upgrade rather than committing to a home improvement project in your current home — will give you the ability to rent your current home for a higher price tag. Identifying the purpose of your buy is a good idea that can help you make a decision that will maximize your financial freedom as well as your family’s level of comfort
2. Evaluate your finances long before approaching a financial institution for a new line of credit.
There are many ways to harness your financial health in order to reduce the interest rate or monthly payment that you will have to contribute after taking out a second mortgage. Homebuyers of all types — first time and seasoned buyers alike — are often cautioned about large credit card purchases or withdrawals from savings accounts in the six months prior to applying for a line of credit or putting a down payment on a house. Buyers need to protect the image of their credit score as if it were the most important aspect of their lives. This is because a small increase in the repayment terms today can equate to thousands, or even tens of thousands, of dollars in extra payments on the loan balance over the life of the loan.
Instead of a traditional home mortgage loan, current homeowners seeking to keep their house and add a second property have access to a unique type of loan structure though that can circumvent the uncertainty of a new mortgage application. Applying the collateral leverage of your home equity can give you a better interest rate and speed the process along quickly. In order to take advantage of this opportunity, it’s important to calculate your home equity before approaching a lender. With this structure, homeowners can mobilize their current home as collateral on the loan, giving a financial institution greater peace of mind when lending and speeding up the overall process of extending the line of credit to you.
3. Hunt for bargains in the real estate marketplace.
Real estate is a difficult market to crack. Home prices are constantly fluctuating and new properties are listed and taken off the market every single day. In order to find the best investment for your family, it might make sense to seek out display houses for sale. These are properties that were built with many of the developer’s upgrades included in order to show off the features of homes in a newly constructed neighborhood. This means you will get a newly built home with a number of fantastic upgrades included and at a fraction of the price that its surrounding dwellings sold for.
Buying foreclosure homes and display homes is a go-to solution for investors looking to add to their portfolios at a discounted rate and might be the perfect way for you to add real estate to your holdings, too.