Tress Realty Group
  • Home
  • Investors
  • Homeowners
    • Selling >
      • Sale Prices
    • Buying >
      • Land
      • New Jersey 55+
  • News
  • About
  • Contact
  • Send Out Cards

Hidden costs of buying a vacation home

2/28/2015

0 Comments

 
Picture
Expect stricter mortgage requirements
More than 60% of vacation-home buyers carry a mortgage (current national average rate: 3.5% on a 30-year fixed-rate loan). If you plan to get one, be prepared for more scrutiny from lenders than on primary residences.

“These loans tend to have higher credit requirements because people are taking on large amounts of additional debt,” says David Gorman, Regional Sales Executive for Bank of America. “Traditionally, they are more likely to pay the mortgage on their primary homes if they run into financial issues.”

Those higher credit requirements come primarily in the form of higher down payments. Expect to put down at least 10% on a vacation home (compared with a 5% minimum, or even no down payment, for a primary residence). You may want to put down 20% or more, if you can, to avoid paying private mortgage insurance (PMI), which usually runs between 1/2 and 1% of the loan amount on an annual basis.

You’ll qualify for the best mortgage rate if your credit score is over 700. Otherwise, you could pay a rate that’s about 1% or more higher.

Know the cost of insurance
You’ll, of course, need homeowner’s insurance and you may have to buy flood or earthquake insurance (that costs $650 and $800 a year, on average, respectively).

According to the Insurance Information Institute, if you plan to use your vacation home exclusively for yourself, insuring it may be as simple as extending the policy you already have on your primary residence.

If you’ll be renting it out, though, you’ll need to buy a separate rental dwelling policy; that costs about 25% more than your primary home’s policy. Most rental dwelling policies reimburse for the loss of rental income if you can’t rent your place out while it’s being repaired due to damage from a covered loss.

Property management
Since owning a vacation home means you won’t be there all the time, you may need to hire someone to take care of it during your absences — or when you’re in between guests, if you rent it out.

For townhouses or condominiums, you homeowner’s association dues will handle outside maintenance. No such luck for single-family homes. Regardless, the inside is your responsibility.

If you’ll hire a property management company, figure on spending about $75 a month, not including the cost of repairs. This firm can also help you find renters if you want; expect to pay upward of 30% or more on the daily rent you take in.

Understand tax implications
Be sure you’re familiar with the vacation home tax rules, too, before making a purchase. The property will still qualify for the mortgage interest deduction, assuming the combined mortgages on both your homes don’t exceed $1.1 million. And property taxes are fully deductible.

Things get trickier, taxwise, when you use the vacation home as a rental property. “If you rent out your vacation home for more than 14 days a year, you will have to report rental income,” says Jared Callister, a tax attorney in Fresno, Calif. “But you will also be able to deduct rental expenses, like repairs and depreciation.”

What you can deduct depends on how much you use the place personally versus renting it out. Also, most states expect you to pay sales taxes on rental income.

Some cities and counties impose such taxes, too; they may go by other names, such as lodging, accommodations, hotel, bed, tourist or transient occupancy taxes. Be sure to find out whether you’d owe them so you’re not hit with a nasty surprise after you become a vacation-home owner.

Craig Venezia is a real estate writer for the San Francisco Chronicle and author of “Buying a Second Home: Income, Getaway or Retirement.” He and his wife own a second home in the San Francisco Bay Area.
From: Marketwatch.com
0 Comments



Leave a Reply.


    Picture

    Tress Realty

    Tress Realty Group compiles some of the best real estate news, tips, and information for buyers, sellers and investors.

    Get started with your home search at www.TressHomes.com.

    Archives

    April 2020
    January 2019
    October 2018
    July 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    June 2013

    Categories

    All
    Chatham
    East-brunswick
    Fair Haven
    Glen Ridge
    Hoboken
    Home Sales
    Maplewood
    Millburn
    Montclair
    Ridgewood
    South Orange
    Summit
    Tress Homes

    RSS Feed

Home

Website disclaimer and copyright

​
Use of the information and data contained within this site or these pages is at your sole risk. If you rely on the information on this site you are responsible for ensuring by independent verification its accuracy, currency or completeness.  It is provided “as is” without express or implied warranty. 

Some properties which appear on this web-site may no longer be available because they are under contract, have been sold or are no longer being offered for sale.  Images uses for navigation may be for properties in different towns, and are not intended to be considered anything other than representative of the types of houses that may be found in a particular municipality.  All data and/or search facilities on this site are for consumer's personal, non-commercial use and may not be used for any purpose other than to identify prospective properties that consumers may be interested in purchasing.

Tress Realty Group cannot guarantee the accuracy of the IDX/MLS data created by outside parties. Tress Realty Group further assumes no responsibility for any misleading content or incorrectly listed information due to such negligence. All ancillary information presented on this web-site is not guaranteed and should be independently verified by the users of this site. Tress Realty Group makes no warranty, either expressed or implied, as to the accuracy of the data contained within or obtained from this web-site.

Tress Realty Group accepts no liability for any interference with or damage to a user’s computer, software or data occurring in connection with or relating to this Site or its use or any website linked to this site.  Further, Tress Realty Group has provided Hypertext links to a number of sites as a service only. This should NOT be taken as implying any link between us and those various organizations or individuals.

Disclaimer: this website may be supported by ads and participation in affiliate programs. We may earn a commission when you click our links. The information included in this post is for informational purposes only and should not be taken as legal or financial advice.

Site copyrighted by Tress Realty Group LLC  © 2016-2022, all rights reserved.
  • Home
  • Investors
  • Homeowners
    • Selling >
      • Sale Prices
    • Buying >
      • Land
      • New Jersey 55+
  • News
  • About
  • Contact
  • Send Out Cards