With affordable housing available more readily than ever before, owning a second home is no longer just a privilege for the wealthy. In fact, statistics show that a growing number of India’s buyers are now turning towards buying affordable second homes in lower tier cities.
For you, a second home could mean changing residences and moving into a new living space. Or, if you have the capital you may want to make your second home as a real estate investment that brings you substantial returns.
Either way, regardless of your goals and preferences, the process of buying a second home does come with its unique set of challenges.
And just as first-time home buyers encounter unusual struggles on their buying journey, second timers also experience similar difficulties but with a whole lot of new problems added to the mix. And this can get quite nerve-racking.
With that in mind, we’ve put together this guide to help you be more prepared when it comes to buying your second home.
Here are a few challenges to consider when buying your second home –
Get your financing in order early in the process
It’s quite likely that you may assume, “Getting loans is simple” since it’s your second shot at the game. But nothing could be further from the truth.
Keep in mind that bank loan criterion may have changed over the years, and getting a new loan this time around might not be as simple as it was when you had applied for the last time.
So even before you start the process of buying your second home, ensure that your finances are in place. Consequently, when the time comes to make the purchase for your new home, you will have the ability to close much faster and also seek homes with more confidence.
Consider home equity loans
If you have a running mortgage on your current home and need funds for paying for your new property, then a home equity loan may be a better way to go as opposed to taking a traditional home loan.
The benefit of a home equity loan is that it allows you to receive credit based on the amount of debt you’ve already cleared on your current mortgage. Say, for example, you’ve purchased your first home for Rs50 lakhs, and you’ve already settled Rs30 lakhs off the mortgage on it, then considering that your home is still valued at Rs50 lakhs, you have the option to take a home equity loan for up to Rs30 lakhs.
The major advantage of a home equity loan is that it provides you with an opportunity to borrow money based on a home equity line of credit. This option allows you to get approval for a maximum amount available (referred to as the line of credit) and then borrow smaller amounts whenever you need to.
Interest is based on only the amount of money you draw out from the pool. This means you may pay a much lesser interest. However, the downside to the flexibility that the line of credit offers is that the lender has the right to freeze or cancel the credit at his own will. This can be a deal-killer and may put you at potential risk. So consider the pros and cons carefully before you choose the option of a home equity loan.
The balancing act between buying and selling
If you’re selling your old house and moving your primary residence, this is probably the biggest challenge you will encounter as a second-time home buyer.
Having two mortgages at the same time is not a pleasant situation to be in. And in such circumstances, it is better to sell your first home before making the purchase of your new second home.
This might put you at a slight inconvenience as you would have to make temporary living arrangements between selling your first home and buying your second one.
But selling your old home first comes with several benefits.
And one of the prime benefits is that you maintain the power to stay focused and not be tempted to say ‘yes’ when you receive bad offers from buyers for your old house. However, if you buy your second home before selling the first one, you may stand to lose money on your first home since you’ll be under pressure to cover for your remaining mortgage payments. And thereby may give in to weak offers that you may receive. Being in such a situation can be quite disadvantageous.
Making the purchase at the right time
It is best to make a purchase when the market is experiencing a bit of a slump. This goes to say that searching for your new home at a slower time is a good idea. Why so, you may ask. That’s because the situation is ideal when there are fewer buyers in the market. A slower market forces sellers to be open to negotiating on the terms and pricing for their homes, as it is in their better interest to make a sale under difficult circumstances.
Thus, timing your purchase can give you a significant advantage and offer you the perfect opportunity to negotiate the best deal for your second home.
Broaden your scope and be open to homes that need work
In cases where you’re moving to a new home, you may be surprised to know that move-in condition homes may cost you significantly higher. And the money you’d expected to pay for your new home may fall short.
In such situations keep an open mind to considering homes that may need work and renovations.
There are also lesser buyers in the market for homes that need to be updated. This means you also end up getting better deals as compared to when there are more buyers.
While redoing sections of your home can be quite messy and involves spending extra money, it isn’t as expensive when you take an overall perspective on the price of your second home.
Additionally, be sure to ask about repair work that may be needed in your new home. This way you’ll be in a much better position to estimate your renovation costs after you’re in possession of your new home.
Know the risks of owning a second home
If your second home serves the purpose of being a vacation home or a retirement retreat, both apartments and independent housing are prone to vandalism, encroachments, and other hazards. This is especially true when your second home is further away and in more remote locations. Keep in mind that managing far away homes are not simple.
And thus to protect your home from dangers, make sure to setup basic amenities like security systems and alarms in vacant houses. Additionally visit the house regularly, to keep it clean and to protect it from deterioration.
Make your buying offer strong
When you are buying a home, sellers are not just concerned with the price that you’re willing to pay for the property. They are also interested to know how quickly you want to take possession. This is because sellers are always keen on closing. So if your financing is already in place and you’re happy with the home and are ready to work with the seller’s timetable, then your buying offer automatically stands out as stronger against all other competing offers.
And this will put you in an advantageous situation when getting your second home.
Summary
The best approach towards buying your second home is to educate yourself beforehand and understand the challenges involved.
Purchasing your second home can also take you a significant amount of time. So, remember to be patient through the process. And don’t be hasty. If you feel overwhelmed, take a deep breath, and try to focus your mind on the end.
Have you been through the second-time home buying process? Would you like to share any advice with other house hunters? Let us know in the comments below.
This article was originally published on www.thehindu.com dated July 07,2017
