Should You Buy a Second Home as Your First Home?

Should You Buy a Second Home as Your First Home?

February 12th, 2020 | Purchasing a Home, First-time Homebuyers

There is a new trend catching on among younger urban residents: renting in the city and buying a vacation home as their first house purchase. This unconventional approach to first-time homebuying is one way for these buyers to achieve homeownership and all its benefits when they are priced out of their own market. 

Real estate prices in most major U.S. cities are rising so high that it is virtually impossible for young professionals to start their home-owning journey within city limits. The creative solution of buying a vacation home while renting a primary residence in the city allows buyers to start building equity, earn rental income and provide them with a permanent vacation spot. If this sounds like it might fit your situation, here’s what you need to know:

Buy in the Right Area

This property strategy works best if you find a home just outside a major destination area or city (think New York, San Francisco, Denver, Seattle, etc.) For example, buyers who want a vacation home outside Washington D.C. might consider Alexandria or Ocean City while good Los Angeles-area vacation properties might be found in Santa Barbara or Joshua Tree. It is important that you choose an area where you personally want to spend vacation time. It should also be somewhere you can easily access in order to do regular property maintenance.

Make Plans for Vacation Renters

Because you only intend to spend a few weeks each year at the second home, you can help pay for the property by bringing in vacation renters. You can engage vacation property management services like VRBO or Airbnb to help with this process. Depending on going rental rates you might be able to completely pay for your monthly mortgage with the proceeds. For example, if you take out a second home mortgage in one of these areas for $400,000, your payment would be roughly $2,000 a month.  If you can charge $200 a night, you will only need a minimum of 10 nights of vacationers to cover the mortgage. 

Research Second Home Mortgages

Mortgages for vacation homes are different than primary residence home loans and you may find fewer options. Interest rates are typically a littler higher on vacation property loans than on traditional loans but they are still lower than investment property loans. (And you do need to spend some time each year in your vacation home in order to qualify for a vacation mortgage. If you plan to rent out the place 100% of the time, you will have to use an investment property loan.) Most second home loans require at least a 10% down payment with good credit scores and cash reserves.

Prepare for Emergencies

Finally, in the event that you are not able book enough renters, you’ll need to have back up funds to over the rest of the mortgage. You’ll also need to have extra cash for repairs, maintenance and any property emergencies that pop up.

It you are an urban dweller who has been priced out of your home market, buying second home with your first mortgage may be the best way to enjoy the benefits of homeownership.

Call us today at 630-519-5955 and we'll help you finance your next home purchase.


Leave a Comment

Contact Us

Not readable? Change text.


Required Documents

VA Loans

Veteran Loans

Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate License #MB.6761138, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation License #MBR1930 dba Prime 1 Mortgage Inc, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights 60DB055973 and a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending. Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

Loan product availability is subject to qualification of the borrower and loan approval after full review of the file. Not every applicant qualifies or is eligible for every loan program. Some loan products may not be available in all states. Loan approval, note rate and annual percentage rate are dependent on factors including, but not limited to, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms and annual interest rates are subject to change without notice. NMLS: 1434638