The new lifestyle trend of owning two homes is becoming more and more commonplace, not just among the elite class of billionaires as some may think. Especially in the post-pandemic, hybrid-work model that has become the new way of the workforce, splitting time between two locations can easily be done and is more common than it used to be. Buying a new home is not just for dual living, however.
You can purchase a second home for a variety of reasons, such as an investment property to own and rent to tenants or to fix up and flip for profit. You could also own your own vacation home as a cheaper alternative to hotel stays, renting out for short-term stays while you are not in residence.
Whatever your reasons for purchasing a second home, the process is now more attainable than ever before. If you have equity in your current home, you can use a cash-out refinance to buy a second home. This is a great way to invest in yourself using your own hard-earned equity that you built up in your first home.
The mortgage experts at Solarity Credit Union list below some enticing reasons to purchase your second home.
1. Hybrid Living
Perhaps you and your spouse prefer different lifestyles; one of you prefers the hustle and bustle of city life and the other prefers the calm, serene life found in country living. Finding a permanent place to call home can be a struggle when you each seek different things in a property to call your forever home.
One way around this can be living the best of both worlds and investing in two homes over time instead of one. This way, you and your partner can both enjoy both lifestyles and have it all with a home in both locations.
2. Rental Property
Another great reason to purchase a second home is to use the second home as an investment property by renting it out to tenants for a profit. If you will only be using the home for a few months a year, you may also consider using this home for part of the year and then renting it out for the months that it will be vacant.
Either way, the money you receive from your tenants each month can be used as a means to pay off the home loan on the property. Once the mortgage is fully paid, the property can provide financial security as you continue to earn money each month from renting it out. This is a great way to start building up equity on your second property as well, in case you ever need to borrow against it for emergencies.
3. House Flipping for Profit
Similar to renting out a home for profit, you may purchase a fixer-upper home at an auction in order to invest your time and money in improvements to the home and then sell it for a higher price than it cost to purchase and improve the home.
Flipping a fixer-upper house is not something to take on lightly, as there is a steep learning curve to successfully walking away with a profit. It is always a good idea to do your due diligence before purchasing any investment property to ensure you don’t lose money on your attempted investment.
4. Vacation Property
Does your family spend a lot of vacation time in the same place each year? Traveling is expensive, and a great way to curb costs each year is to purchase a second home to use as your annual retreat instead of paying the costly fees of hotel stays.
With a second home, you can stay in a house that is already set up to your liking with all of your needed amenities ready to be used. If you aren’t using this home for the whole year, consider renting it out as an investment for the remaining months.
5. Buy a Home for Family
Family is always a great reason to purchase a second home. Your child may need a home to grow into as they build their family, or a family member may not have the means to purchase a home themselves. Using a cash-out refinance to purchase a second home can mean your family member doesn’t go homeless in their time of need.
Using a Cash-Out Refinance to Buy a Second Home
Buying a second home may seem impossible, but many homeowners already have the resources to make it happen. Using a cash-out refinance to buy a second home utilizes the equity you have built up over time in your first home to finance your second mortgage. With a cash-out refinance, you open a larger loan than what you currently owe on your existing mortgage and use that to pay off your existing mortgage. You receive the difference in a lump cash sum to do with as you see fit. This extra money can be used to pay closing costs and make a down payment on a new home.
The repayment terms for a cash-out refinance are usually up to 30 years, just like the standard mortgage. You may even be able to get a lower interest rate on your mortgage if you have improved credit scores than when you opened your first mortgage. Typically, lenders will allow borrowers to receive up to 80 percent of your first home’s value, which means that you will need to keep a minimum of 20 percent equity on your current home. You will also need to pay closing costs, which can range from 2 to 6 percent.
The great thing about cash-out refinance loans is that you only need to worry about paying off one mortgage each month instead of two since they are rolled into one loan. If you are interested in opening a cash-out refinance loan and would like to start researching what terms you would be eligible for with your current home loan, try using this cash-out refinance calculator to determine if this option is right for you.
You can also talk to the experts to discuss your options. A Home Loan Guide from Solarity Credit Union can help you determine if using a cash-out refinance to buy a second home is the right move for you. Achieving your second-home dreams might be just around the corner.
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