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What to Know When Buying a Second Home

A detailed look at the nuances of buying a second property.
Daniel Platow
Daniel Platow Relationship Manager 3 min read
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Looking to summer in the Hamptons or escape winter to Tahoe? While buying a second home is an exciting financial and personal milestone, many homebuyers start searching without understanding that financial requirements, and expenses, are often heightened the second time around.

Taking a few moments to familiarize yourself with the upfront and long-term costs associated with purchasing a second home can save you from complications during the process. Below are some of the important distinctions between buying a primary and second home that, when considered, can prepare you to make the strongest bid on your dream vacation home or high-potential seasonal investment property.

Second home buyers also face more stringent credit score requirements than those experienced by primary home purchasers.

Higher down payment

It’s a common misconception that the standard 20 percent down payment made for a primary residence will also apply for the purchase of a second home. Unfortunately, potential buyers are sometimes disappointed to find that the home they fell in love with will need substantially more upfront capital to purchase.
Down payment requirements are typically greater than that of the typical 20 percent depending on property cost, applicant credit score, geographic location and other outstanding fixed debts. Be prepared to have a higher down payment than what’s expected for a first home.

A couple considering the purchase of a $2 million vacation home, for example, may feel let down when they realize the $400,000 they’ve stashed away isn’t enough to fund their down payment. An upfront conversation with a banker can help an individual or couple set expectations for what’s within range before setting out on the open house circuit.

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More liquid capital needed in the bank

When purchasing a second home, many financial institutions require a borrower to have liquid reserves equal to several months’ worth of payment for fixed monthly expenses. This includes automobile payments, mortgages, monthly condo or co-op fees, real estate taxes and potential bills for any outstanding lines of credit — whether they’re currently fully utilized or not.

A cash reserve requirement could be as low as 12 months, but it could be as high as 36 months, depending on the amount of the loan and current levels of other outstanding debt.

For some, higher interest costs

Investment property purchasers are likely to face mortgage rates that are about one half of a percent higher than those seen by primary and vacation home purchasers. There is also often a fee, between one-half and a full percent of the loan value, assessed for investment properties at settlement.

Additionally, second home buyers face more stringent credit score requirements than those experienced by primary home purchasers. Individuals with a top tier credit score will generally have access to the most attractive mortgage prices.

Unexpected settlement surprises

An unsuspecting buyer can run into a few snags when purchasing property in a new state. A buyer in New York may not know to prepare for a mortgage or mansion tax, for example, or to build in time for an application review by a condominium or co-op board. In California, a purchaser may not know to hire an escrow agent or secure wildfire insurance protection. Also, settlement costs and requirements vary by state, sometimes dramatically.

For first-time second home buyers, these unfamiliar requirements can add additional out-of-pocket costs or needlessly delay a purchasing timeline. Working with a banker or financial planner early in the search for another property can help a family or individual plan a working budget and prepare for the additional costs and requirements associated with buying a second home.

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The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. First Republic Bank does not provide tax or legal advice.

If you’re ready to learn more about purchasing your new (or next) home, we’re ready to help you explore what’s possible.


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Banking products and services are offered by First Republic Bank, Member FDIC and Equal Housing Lender

Investment Advisory services are provided by First Republic Investment Management, Inc. Trust and Fiduciary Services are offered through First Republic Trust Company, a division of First Republic Bank; and First Republic Trust Company of Delaware LLC and First Republic Trust Company of Wyoming LLC, both wholly owned subsidiaries of First Republic Bank. Brokerage services are offered through First Republic Securities Company, LLC, Member FINRA / SIPC. Insurance services are provided through First Republic Securities Company, DBA Grand Eagle Insurance Services, LLC, CA Insurance License # 0I13184, and First Republic Investment Management, DBA Eagle Private Insurance Services, CA Insurance License # 0K93728.

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