What they don’t tell you on TV, but you need to know to make your dream come true
Truth be told, I had a little bit of insomnia the other night. In my late night quandary of what to do since I could not sleep and counting sheep seemed pointless, I decided to indulge in a guilty pleasure of watching some reality TV and dreaming about living in the Caribbean. Doesn’t that sound so nice; sand, sun, and time passing by ever so slowly as you sit sipping on drinks with little pink umbrellas while listening to the waves from the crystal blue ocean waters softly crashing into the white sandy beaches as you peer over the rim of your sunglasses to watch the sunset?
According to the National Association of Realtors (find them on Twitter @NAR_Research), 1.13 million vacation homes were purchased in 2014….an increase of 57% over the previous year. So a lot of people think this is a good idea – Great minds do think alike.
Easy breezy island living. To make this dream come true just hop a plane, find an agent, make an offer and move right on into your new home. This lifestyle awaits you. If you can’t do it full-time surely you can make this work part-time. Just buy it as a second home and rent it out to cover the payment and it won’t cost you a penny. Right? Maybe not.
Places To Go
There are a lot of great places to invest in second homes. You can choose island living or you might want a mountain home or somewhere in a ski village. Or, big dreamer you, you might want a second home near your grandkids. Whatever the case, there are some great places to go when looking for a second home. Out of the country, might not be the ideal choice (we will get to why in a minute…HINT, you will need a lot of CASH), but there are some great places to look in the United States.
According to a few articles from a recent Google search and help from trusted agent Teresa Cowart (find her on Twitter @TeresaCowart and online at www.TeresaCowart.com
) here are a few top cities in the United States to consider the purchase of an investment property:
· Savannah, GA
· San Destin, Florida (the entire panhandle of Florida really)
· Denver, Colorado
· Clearwater Beach, Florida
· Tacoma, Washington
· Outer Banks, North Carolina
Things to Consider
The biggest thing to consider is cash. If you choose to purchase a home outside of the US, you might have to pay for the home in cash or make quite a substantial down-payment. You aren’t a resident of that country and you likely don’t have a credit history in that country. The lending regulations can vary widely. So there is a lot to contemplate.
Even when buying a second home in the US, or a territory of the US, you have to put down more than you do when you are buying a primary residence. With a primary residence you might qualify for a loan with no down-payment like a VA or USDA loan or a 3.5% down-payment loan like an FHA loan or a 5% down conventional loan (note that not all borrowers will qualify and specific terms apply; the government would like for you to read the fine print at the end of this blog for all applicable legal disclosures). On a second home, you will need to put down at least 10% of the purchase price. In addition, with a primary residence the seller is allowed to pay between 3%-6% of the sales price in closing costs/prepaid items; the seller is generally limited to only 3% of the sales price when you are purchasing a second home (see this blog post for more details on closing costs and funds needed for closing
Second is cash flow. You might think that you can rent out your second home for extra income. While the IRS might say this is fine; it is not fine with most mortgage loan options. Once a house is rented out, it becomes investment property. If it becomes investment property, you will need more money down (think at least 20% and maybe more depending on the property and your particular situation) and the seller can only pay 2% towards closing costs/prepaids and the interest rate for an investment property is generally higher than on a primary residence or second mortgage as the risk of default is higher.
In the end, island living is fabulous. But, go in with your eyes wide open and work with a professional Realtor® (remember Teresa Cowart from earlier in this post) and mortgage lender so that you have the best experience possible. Now you’re ready to put on your shades, wiggle your toes in the sand, start sipping on your drink with the pink umbrella and start Island Living.
Join us next time as we explore more in the world of mortgage lending. If you have a burning question or just want to chat — I love to be social……you can reach me on Twitter (@ChrisEllaLoans), Snapchat (ChrisElla2), CyberDust (ChrisElla), emailChristyS@StarkeyMtg.com
, at the office at 912.721.9400, and my website at www.LoansWithChristy.com
. Find out more about me and more ways we can network (Facebook, Instagram, Twitter) at www.about.me\chrisella
As always, if you liked this article please like, share, or comment…….or all of these things; they are greatly appreciated.
Christy Soukhamneut, Area Manager
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