Just the words, ‘Up North’ make us feel good inside, like the sun beating down on your back while you sit in the fishing boat (even better if you catch dinner)…it just feels good to be up north. It’s no wonder that many of us strive to own part of this dream. The key is understanding your financial options and making the right financial decision when it comes to purchasing a vacation home. The following are helpful reminders as you begin your vacation home search.
Run the Numbers
With a vacation home comes a lot of additional expenses beyond a second mortgage. Budgeting and preparing for those is an important piece of purchasing your second home. Consider the additional furnishings, food, outdoor recreational toys, equipment, maintenance, insurance and repairs. As with any home purchase, a financial cushion is necessary.
Understand Your Finances
Typically, lenders will assess your finances and look at 2 things, specifically. The first, your debt-to-income ratio. Lenders generally want your debt (including the new mortgage) to represent no more than 36 percent of your monthly pre-tax income. The second, your loan-to-value ratio on the second home. Vacation home loans tend to be more conservative than a primary home loan.
Loan Options
A large number of buyers use a home equity line of credit on their primary residence to purchase a second home or vacation home. Other options include 15 and 30 year fixed rate and variable rate loans. It’s best to talk to your lender about your mortgage loan options after reviewing your finances.
Tax Implications
How you use your home will affect your taxes. If it is a true second home, only used for your personal use, you may qualify for a tax deduction on your mortgage interest and property taxes. However, if you choose to rent your second home (more than 14 days a year) there are additional tax ramifications.
It is always best to consult a financial advisor or professional, but we hope these tips help guide you as you prepare to purchase a vacation home. As always, you can contact Up North Properties about buying or selling a lake home in the Brainerd Lakes area at 218-820-7355 or email sales@upnorthproperties.com.
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