It’s important to make a rock-solid plan before buying a second home. Our vacation home mortgage calculator plus estimated expenses is a good place to start planning for the purchase of your dream getaway, and consulting a CFP Practitioner® is always a good idea when considering major financial decisions.
From the outset, a schedule of expenses should be written for the second property’s monthly budget. The financial plan for buying your second home should be spread across multiple years to get a realistic perspective on what expenses will be incurred. It should go without saying not to buy a second property until you’ve paid the outstanding mortgage on your primary home.
Vacation home mortgage calculator for buying a second home:
Signing the papers for a second home purchase can cause some loss of sleep when the long-term financial commitment becomes reality.
As with your primary home, additional costs to maintaining a second home arise over the course of months and years. Let’s not forget that real estate – especially vacation property – does not necessarily appreciate over time. Prudent homeowners will take responsible steps that helps to ensure a second house remains affordable through life’s twists and turns.
How to budget for expenses other than monthly mortgage payments
Initial amounts will be estimates until the first few months have passed, so pad in an extra 20% minimum expenses when approximating costs for taxes, utilities, repairs, maintenance and improvements. If it’s a seasonal home you may be able to reduce the costs of heating or cooling and water usage. Municipalities may have requirements for maintaining the functioning systems within the house, and vacation communities often have additional maintenance fees built into living within their communities.
HSH Associates assume you will pay approximately 1% of the property’s value in maintenance every year. Repairs to HVAC or kitchen appliances can place a strain on the budget if the budget does not include saving for these eventualities. Grounds maintenance is also essential to sustain the beauty and safety of the property.
Ask for a discount on second home insurance expenses
Property, life and liability insurance are invaluable in protecting the investment and family living arrangement from loss, but did you know many insurance companies will offer a discount on insurance for a second home when bundling insurance products? There are many nuances and options. For instance, life insurance proceeds can be used to repay the mortgage balance and provide for the family if the primary wage earner passes away unexpectedly.
Swimming pool insurance may break your vacation home mortgage calculator
Insurance companies are encouraging vacation homeowners to carry additional liability insurance policies to protect against litigation actions. Avoid extra hazards, or consider buying a condominium which shares the expenses of maintenance and liability across multiple dwellings.
Vacation homes must be furnished, too
Incurring debt to purchase furniture for the new vacation house or condo can cost a fortune. Timing of purchases is essential when the goal is to optimize every dollar. Sales and second hand purchases can work together when acquiring high quality furnishings that will last for years.
Use automated payments when implementing a budget
Creditors and providers should be paid through automatic payment options whenever possible. Automating the payment of bills reduces stress and improves accuracy. For instance, regular maintenance schedules on the property can be set up on bill-pay. Vacation property owners are wise to maintain all properties on a regular basis to ensure the resale value is strong. Delaying important repairs will cause significant hardship or loss when the homeowner wants to sell the property in the future.
King Financial Corporation works to organize our clients and help them take control of their planning and execute accordingly. Contact Brian King for more information and learn more about services offered by King Financial Corporation.