For many, having a place where you can get away from it all is a dream come true. And when you're not there yourself, you can rent it out to earn a little extra income. However, before you make the leap, it's good to know there's a different set of rules for financing vacation or second homes.
Second home mortgage rules:
1. FHA loans cannot be used to finance vacation homes.
This means most buyers finance their vacation homes with conventional or home equity loans.
2. Your down payment for a vacation home may be higher.
For second homes, lenders often require a down payment of at least 20 percent, and the interest rate on your mortgage may also be higher.
3. Extra homes means extra costs for maintenance, utilities, association fees, and property taxes.
Don't forget to factor all of these "hidden" fees into your budget. You may also need to hire someone local to care for the property when you're not there.
4. Current tax law allows you to write off mortgage interest and property taxes for both properties.*
You may be able to deduct up to $10,000 per tax return for state and local taxes. (Check current tax laws to confirm.)
*Not intended to be tax advice. Consult your tax professional.
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