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Considering a Second Home? Make Sure Your Finances are Up to Snuff

December 30, 2011 1:36 am

While the thought of a mountain cabin or a beachfront bungalow may seem like mere fantasy, according to Massachusetts-based mortgage executive, Chip Poli, with the proper research, your dream vacation home might actually be within reach. The first step, says Poli, is to start organizing your finances to make sure you can afford it without compromising the security of your other assets.

Poli offers the following five tips to help you assess whether or not you are ready to handle the financial investment of a second home:

1. Figure out what you can reasonably afford by looking closely at your income, savings, and spending habits. Future expenses need to be factored into your budget, such as the likelihood of replacing a car or adding to your family.

2. Check each of your three credit reports well before you start looking at houses or shopping for lenders. If your credit score needs improvement, contact a credit counseling agency or ask your mortgage company for advice.

3. Create a budget. A budget not only clarifies your current financial situation, but it also helps you identify places where you might cut back to save for a down payment.

4. Consider tax implications. Purchasing a second home has its benefits, but you should make sure you consider funds for property taxes on the second home as well as additional income tax if your home will be rented out. You should research the area's property taxes because some locations have significantly higher or lower property taxes.

5. Get some help. Seek the help of a professional real estate agent and mortgage professional. Today’s market is too unpredictable to go it alone.
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