If buying your first home was your dream come true, buying your second home would be more special than that. This proves that your first investment was a successful one, which is making you invest a second time.

With the purchase of your second home, you can ensure better financial security with a steadier income. Nevertheless, guidance is one thing you may still need, to make sure you have taken the right decision.

So, is it a good idea to buy a second home?

Will you be able to get good returns on your investment?

You may have many such questions, for which you might be looking for answers.

With property rates escalating year after year, buying a second home is not a decision every one can make. But it can be a worthwhile decision if you consider the following factors:

Your Budget

Investing in a second home would mean making another huge purchase. You have to ensure you are financially stable enough to take this decision.

You may or may not have paid back your mortgage on your first home. If you haven’t, you will be burdened with another monthly mortgage payment. Also, you need to find out how you are going to pay for the other things such as maintenance charges, taxes, and insurance expenses. Insurance in fact, will be higher for rental homes.

Consider all the potential costs you may have to incur and set a budget for your second home. Look for only those homes that fit into your budget.

Location

Generally, the purpose behind the purchase of a second home is investment. If you are going to treat your second home as your source of income, you will have to make sure you select an excellent location with decent facilities. The place should be well-connected with good avenues for entertainment. All these make a lot of difference to the value of the property that you are going to purchase.

In case you are going to use your second home as your vacation home or your retirement residence, you may want to select a location that is quiet and peaceful. A row house or a villa would be a great idea. However, you have to make sure the home has good access to convenience stores and hospitals.

You will find many options to choose from, while looking for a second home. Make sure the location you choose suits your purpose behind purchasing your second home.

Return on Investment

There is no use of purchasing a second home if you aren’t going to get good returns on your investment. So, this is one factor you will have to consider before going ahead with your decision.

There are a number of things that affect this. They include the location of your home, the kind of demand that exists for rental properties in that area, connectivity, and social infrastructure.

If you are buying a home in a commercial area, you can expect a higher ROI. Homes in secluded areas may not give you that good returns.

So, if Return on Investment is your main criteria behind buying a second home, look for a home in one of those fast-appreciating localities than the well-established neighborhoods. This way you can expect higher returns over the years, even if your investment is not too high.

Your Long-term Goals

The lifestyle that you wish to adopt and your long-term goals have a lot to do with your decision of purchasing a second home. These factors will decide what kind of home you need to buy, its budget, the location, and its use.

If you are buying for investment purposes you need to look for homes located in residential areas. These will generate higher rentals. However, if it is a retirement home or vacation home, you may want to check out properties with access to health care and entertainment facilities.

Your Financial Sources

Finance is one of the main things you have to think of, before buying a second home. You can pay for it from your savings or you could apply for another home loan. If you go for another mortgage, you can expect more tax benefits too. You can claim tax deductions for property taxes, mortgage insurance, and even your rental expenses.

Your Debt-to-Income Ratio

In case you are going for a home loan, you will have to consider your debt-to-income ratio. This is the first thing that a lender will check before offering you the mortgage you have applied for.

Find out how much percentage of your monthly income you are spending on paying back your debts (including your EMIs and credit card debts). If this is more than 50 percent, there are little to no chances that your loan would be approved. So you will have to work towards improving your debt-to-income ratio if you want to go ahead with your decision of purchasing a second home.

The Lender

You can find many lenders through FHA live transfer leads, if you want to apply for a mortgage to buy your second home. However, each of these may have their own criteria to approve loan applications.

If you have already taken out a mortgage to buy your first home, it would be a better idea to contact the same lender for your second home too. Since you already have a relationship with the lender, your loan might get approved faster, that too at a reduced interest rate.

The Conclusion

Buying your second home could be a very exciting decision. Whether you are buying a vacation home or a home for investment purposes, the demand is always on the rise. Also, real estate investment would any day be safer than investing in stocks and bonds, as you can expect higher returns over a longer period of time. However, do understand that your home ownership costs are now going to be doubled since you will have two homes instead of one. Find out what will suit you and make an informed decision.