The Home Buyer's Korner

Information presented should be used for educational purposes only.

January 21st, 2016

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NASHVILLE, TENNESSEE

Home Buyer’s Korner

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Second & Vacation Home Living

second home

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If you’re thinking about buying a second home to spend some time in when you’re on vacation or just looking for a weekend family get-a-way on Pickwick Lake or just looking for a great place here in Tennessee to call your home away fro home here are some things you should know.

Whether you’re purchasing a lake home or you’re looking at a lakeside-in/beach-out condo at your favorite resort, and you’re only going to be in the unit for short periods each year you may want to consider renting the property the rest of the time to generate some additional income.

If you want to secure financing for a second home with a Fannie Mae mortgage, the financing has both good and not so good points to consider. Maximum financing can often be secured at 90 percent of the sales price, but you’ll also be required to secure mortgage insurance unless you put at least 20 percent down. Getting mortgage insurance can be tricky; not only will your application be reviewed by the lender; it also has to meet the insurer’s requirements. Additionally, not all mortgage insurers offer insurance for second homes with just 10 percent down, but if your lender is familiar with second home financing they should know who does and doesn’t offer it.

The interest rates will probably be less if you’re purchasing the unit as a second home versus an investment property purchase, but more than what you’d get if it was a primary residence.

The location is an issue to be concerned with if you’re looking for conventional financing. Fannie Mae wants the home to be at least 60 miles away from your primary residence. This may or may not be an issue for you. If you’re living anywhere near Memphis and want to purchase a second home near Pickwick Lake you’re over the 60 mile distance requirement, but if you want a second home on the river nearby, it could be a problem. The best solution is to look for a property on the far enough away it doesn’t create any questions, and don’t try to convince the lender your selection is unique and need special consideration, what’s going to happen is you’ll be offer investor financing with a larger down payment requirement and a higher interest rate.

If you do find a property, but it’s within 60 miles of your home what most likely will happen is you will be offered financing terms but under investment guidelines and interest rate.

When you apply for a second home, your lender will want to show you have adequate reserves to afford this luxury item and they’ll ask you to verify you have at least six months of principal and interest payments in a liquid account.

Fannie Mae also doesn’t want you to rent your second home and you will have to sign a separate addendum to your mortgage that it basically states,” Borrower shall occupy, and shall only use, the Property as Borrower’s second home. The borrower shall keep the Property available for Borrower’s exclusive use and enjoyment at all times, and shall not subject the Property to any time-sharing or other shared ownership arrangement or to any rental pool or agreement that requires Borrower either to rent the Property or give a management firm or any other person any control over the occupancy or use of the Property.

If you can’t meet these financial requirements, you’ll want to consider a portfolio loan. Portfolio loans are mortgages often made by community banks and not intended for sale or transfer to Fannie Mae. They do normally carry larger down payments, shorter terms, and higher interest rates. However, the bank is using their depositor’s funds, so they make the rules and they’re often fairly attractive for a luxury purchase.

Once you have determined how you intend to finance your second home and if you can rent to out to generate some additional income, you’ll need to get it ready for your first tenants. Spend some time walking through the home to determine what’s missing and what needs to be upgraded. Do you have a few spare sets of sheets and towels? Are all of the kitchen appliances in top condition? If you’re going to be supplying soap, shampoo, and other toiletries, are you fully stocked? Remember – your goal should be to impress each and every client to ensure they leave a positive review and come back again in the future.

Since it’s likely you don’t live in the area, you’ll want to contract out the cleaning and management to local vendors who specialize in managing vacation properties. It should be relatively easy to find these companies with a quick web search, but be sure to ask for recent references, so you can rest easy knowing your home is in good hands. The best resource I can recommend is a local real estate agent or broker, as they often are experts in both managing and marketing second homes.

Once your home is prepared and you have your team lined up, it’s time to list your property on websites such as VRBO, HomeAway or AirBnB. Browse through other local listings to see how your competition markets their properties and average daily or weekly rates or ask your real estate agent if they will do this for you.

You may also be subject to local taxes. Most local tax authorizes requires taxes on units rented for less than 30 days and something you can find out about by talking with your local tax authority or bookkeeping service, but again the one person who’s going to know the answer off the top of their head and easy to locate is your real estate agent.

Finally, if you’re planning on managing the property yourself, you’ll need to figure out a way to provide 24 hour access, and you’ll need to set up a PayPal account or figure out another way for your clients to pay for their stay.

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TENNESSEE HOME OWNERSHIP TOOLS

Your Home Purchasing or Refinancing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace a deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

Great for Real Estate Investors and Second Home Renovations

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

Mortgage Loan Officers, Real Estate Agents & General Contractors are ready to assist you

A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

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