Choosing an ideal location is just one of the many things you’ll need to consider when preparing to purchase a second home. From bans on short-term rentals to wide ranges in property taxes, be sure to do your due diligence before making an offer.
In Part III of this series we'll break down additional items to consider before making your purchase, from following local regulations to financing your new second home.
Key Factors to Consider When Buying a Second Home – Part III: Considerations
Rental Laws and Restrictions
If you plan to rent your home to vacationers, be sure to look into the area’s growing regulations regarding short-term rentals. Manistee has debated placing limitations on the number of these rentals, and individuals looking to rent in Traverse City have to submit a special application. Additionally, some private HOA communities may have restrictions on renting.
Don’t be discouraged by potential restrictions—there will be plenty of properties to choose from that will work with your goals. Michigan’s lakeshore is a premier vacation destination and relies on tourism for much of its economy, so any restrictions certainly won’t eliminate all vacation rentals. Just be sure to speak to your real estate agent about individual properties to be sure it will align with your potential rental plans.
If you don’t plan on living locally, you’ll need to have a plan in place for who will maintain the property when you’re not there and calculate these costs into your budget. Maintenance requirements may also influence the kind of property you consider purchasing; a home with a large yard or complex landscaping may be less appealing than a condo with maintenance included in the HOA after consideration. Additionally, remember that Michigan winters are cold, and winter weather is common along the lake. If you don’t plan to occupy the property in colder months, you’ll need a plan in place for winterization.
Your real estate agent may be able to recommend a local property management company that handles both the renting and cleaning of the property, as well as arising maintenance needs.
Individual properties will have unique associated costs, which should be considered as you weigh your options. These can include:
- Insurance: Your property insurance premiums can vary significantly based on your property type, size, and location.
- Flood Insurance: Flood insurance is an important necessity to protect your investment in certain, flood-prone regions.
- Utilities: Modern travelers may not need a landline, but be sure to include Wi-Fi, along with other basic utilities, in your budget.
- Transportation: Traveling from afar? Don’t forget airfare when determining your annual out-of-pocket costs. Most Michigan communities are car-dependent, so you’ll also need to include rental car fees or the cost of a back-up vehicle.
- Tax Implications: Income from rental properties are taxed, but you may be able to fully or partially write off many expenses, including property taxes, to reduce this impact. If you do not plan on renting your home, you may still be able to deduct property taxes if you itemize deductions. Regardless, be sure to compare property taxes associated with different homes and municipalities as you consider your options.
- HOA Fees: Purchasing a home in a community with a homeowner association can give you peace of mind and reduce stresses associated with exterior maintenance. Just don’t forget about this cost as you calculate your budget or expected income.
How to Finance Your Second Home
Many of us may put off purchasing a second home over reservations about taking out an additional home loan, or concerns about how much money is needed to buy a house upfront. However, as property values continue to rise, any real estate purchase should be considered an investment, and finding an affordable property and loan can make smart economic sense when you consider the long-term picture. Also, keep in mind that if you plan on renting your home or you itemize your deductions, interest on your loan may be tax deductible.
As we wrote in our recent post on second home financing, recent changes to Freddie Mac and Fannie Mae rules have increased costs associated with mortgages for second homes. Despite these changes, there are still many cost-effective ways to finance a second home.
- Conventional Mortgages: Often requiring down payments of up to 20% for second homes, traditional home mortgages come in both fixed-rate and adjustable-rate options. If you are able to supply a sufficient down payment, they may be a good choice for your second home loan, even with additional costs.
- Second Home Loans: At West Shore, we also offer customized financing for second homes, to meet the demands for this form of financing in our region. These loans offer competitive rates paired with down payments as low as 10%.
- Home Equity Loans and Lines of Credit: If your current home has a lot of equity—its value, minus balances on your home loan(s)—a home equity loan or line of credit can be an affordable option that allows you to fund your second home without a down payment or without taking out a new mortgage.
- Cash-Out Refinance: If you have a mortgage, a home equity loan will be an additional loan on top of your mortgage. However, with a cash-out refinance, you create one all-new home loan, receiving your current home’s equity in cash to be used to pay for your second home. This can be a good option if you can improve the terms of your current home with a new loan. You can also use this option in conjunction with savings.
We offer a variety of flexible home loan options to meet your individual goals and financial picture, and our experienced West Shore mortgage lenders can help you find the right loan for your needs.
Buy a Second Home in Michigan Today
If you are considering buying a second home along the Lakeshore, we can help. Our lenders are familiar with local real estate conditions, know our area’s premier real estate agents, and have years of experience finding cost-effective solutions for both Michigan residents and welcomed visitors looking to invest or put down roots in our picturesque region.
Ready to apply for a home loan? Want to discuss your options? Speak to a Mortgage lender today—your dreams of owning a vacation home could be closer than you think!
For more information, check out the other two blogs in our series: