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Buying A Second Home? 8 Things To Consider

Buying a second home is a major expense. You might have several reasons for wanting to buy a second house. Perhaps, you’re buying a second home for vacations or weekend getaways. Or, it might be that you want to use it as a rental property for rental income. However, there are things to consider before buying a second home.

The benefits of buying a second home

If you’re buying a second home for rental income, you’ll benefit from many perks, especially tax advantages.

For example, you will be able to deduct interest, property taxes, homeowners insurance and other expenses against the property’s income.

Even if the value of the property declines, you will still be able to deduct depreciation from your taxes.

While these benefits are great, the mortgage requirements for a second home are much stricter than for a mortgage on your primary residence. So, make sure you can afford it.

8 Things To Consider When Buying A Second Home

1. Financing options: When you bought your first home, you had available to you what’s called an FHA loan – a government loan program.

FHA loans are an appealing and favorite choice among first time home buyers due to their relatively low down payment requirement.

FHA loans require a 3.5% down payment and a relatively low credit score of 580. However, FHA loans are not available to second home buyers.

That is because FHA requires the home to be the borrower’s primary residence. So, if you’re thinking of buying a second home, you will need to either use a conventional loan or financing it with your own cash.

2. A larger down payment: If you’re using a conventional loan for your second home, you will need to come up with a larger down payment.

Lenders for a conventional loan usually requires a 20% down payment of the home purchase price.

But for a second home which will be used as a rental property or vacation home, expect lenders to ask for 30% or even 35%.

3. A higher credit score. For an FHA loan, you only need a credit score of 580 to qualify. But for a conventional loan on a second home, you will need much higher credit score — usually 750 or higher.

4. Expect a Higher Interest Rate: Lenders will likely charge you a higher interest rate on your second home than your primary residence.

The reason is because they see a second home — be it a vacation home or a rental property — as riskier. They feel that you are more likely to default on a mortgage on your second home than on your primary residence.

5. Do your research: Just as you did your homework when you bought your place to live in, buying a second home is no different.

In fact, you’ll need to spend more time researching rental property. That means researching the neighborhood you will want to invest in, knowing the zoning laws for a particular area, the sales price for the homes in the area.

You will need to know if the area has adequate public transportation, schools, grocery shopping, etc,– things that potential tenants will need.

6. Be prepared to be a landlord: if you’re buying a second home to rent, be prepared to be a landlord.

And be prepared to deal with all of the headaches that come with being a landlord. Do you have sufficient time? Can you deal with problems?

Owning a rental property and being a landlord is time consuming. It is also hard hard work and you have to do your due diligence.

You can hire a property manager to run the property for you. But if that is not feasible, you’ll have to do it yourself.

That means, screening new tenants, collecting rent, dealing with delinquent tenants, fixing problems in the property, such as a broken pipe.

So before buying a second home, make sure you have sufficient time and make sure you can deal with the day-to-day headaches that come with being a landlord.

7. Do you have a stable income? Dealing with a second mortgage on your second home is doable.

While you may be able to afford upfront costs, if you don’t have a stable income, you may have to think twice about whether it is a good idea.

Plus, you still have to consider the additional expenses of owning a second home such as insurance, property taxes, maintenance, repairs, property management fees, etc.

8. Are you out of credit card debt? If you have paid off outstanding and high interest credit card debts, then purchasing a second home may make sense.

But if you’re still struggling to pay your debt, you may need to put buying a second home on hold. 

The bottom line

If you’re thinking about buying a second home, whether it is for investment or vacation, be prepared to save some money, budget for expenses, and come up with a bigger down payment.

More importantly, spend as much time, if not more, researching for the home just as you did when your purchased your primary home.

Speak with the Right Financial Advisor

  • If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
  • Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

Source: growthrapidly.com

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Budgeting for Beginners: These 5 Steps Will Help You Get Started

Setting up a budget is challenging. Doing it forces you to face your spending habits and then work to change them.

But when you decide to make a budget, it means you’re serious about your money. Maybe you even have some financial goals in mind.

The end result will bring you peace of mind. But if you’re creating a budget for the first time, remember that budgets will vary by individual and family. It’s important to set up a budget that’s a fit for YOU.

Budgeting for Beginners in 5 Painless Steps

Follow these basic steps and tailor them to your needs to create a monthly budget that will set you up for financial success.

Step 1: Set a Financial Goal

First thing’s first: Why do you want a budget?

Your reason will be your anchor and incentive as you create a budget, and it will help you stick to it.

Set a short-term or long-term goal. It can be to pay off debts like student loans, credit cards or a mortgage, or to save for retirement, an emergency fund, a new car, a home down payment or a vacation.

For example, creating a budget is a must for many people trying to buy their first home. But it shouldn’t stop there. Once you’ve bought a home, keep sticking to a budget in order to pay off debt and give yourself some wiggle room for unexpected expenses.

Once one goal is complete, you can move on to another and personalize your budget to fit whatever your needs are.

Step 2: Log Your Income, Expenses and Savings

You’ll want to use a Microsoft Excel spreadsheet or another budget template to track all of your monthly expenses and spending. List out each expense line by line. This list is the foundation for your monthly budget.

Tally Your Monthly Income

Review your pay stubs and determine how much money you and anyone else in your household take home every month. Include any passive income, rental income, child support payments or side gigs.

If your income varies, estimate as best as you can, or use the average of your income for the past three months.

Make a List of Your Mandatory Monthly Expenses

Start with:

  1. Rent or mortgage payment.

  2. Living expenses like utilities (electric, gas and water bills), internet and phone.

  3. Car payment and transportation costs.

  4. Insurance (car, life, health).

  5. Child care.

  6. Groceries.

  7. Debt repayments for things like credit cards, student loans, medical debt, etc.

Anything that will result in a late fee for not paying goes in this category.

List Non-Essential Monthly and Irregular Expenses

Non-essential expenses include entertainment, coffee, subscription and streaming services, memberships, cable TV, gifts, dining out and miscellaneous items.

Don’t forget to account for expenses you don’t incur every month, such as annual fees, taxes, car registration, oil changes and one-time charges. Add them to the month in which they usually occur OR tally up all of your irregular expenses for the year and divide by 12 so you can work them into your monthly budget.

Pro Tip

Review all of your bank account statements for the past 12 months to make sure you don’t miss periodic expenses like quarterly insurance premiums.

A woman with a dog reviews financial docements spread out on the floor.
Getty Images

Don’t Forget Your Savings

Be sure to include a line item for savings in your monthly budget. Use it for those short- or long-term savings goals, building up an emergency fund or investments.

Figure out how much you can afford — no matter how big or small. If you get direct deposit, saving can be simplified with an automated paycheck deduction. Something as little as $10 a week adds up to over $500 in a year.

Step 3: Adjust Your Expenses to Match Your Income

Now, what does your monthly budget look like so far?

Are you living within your income, or spending more money than you make? Either way, it’s time to make some adjustments to meet your goals.

How to Cut Your Expenses

If you are overspending each month, don’t panic. This is a great opportunity to evaluate areas to save money now that you have itemized your spending. Truthfully, this is the exact reason you created a budget!

Here are some ways you can save money each month:

Cut optional outings like happy hours and eating out. Even cutting a $4 daily purchase on weekdays will add up to over $1,000 a year.

Consider pulling the plug on cable TV or a subscription service. The average cost of cable is $1,284 a year, so if you cut the cord and switch to a streaming service, you could save at least $50 a month.

Fine-tune your grocery bill and practice meal prepping. You’ll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see what’s on sale, and plan your meals around those sales.

Make homemade gifts for family and friends. Special occasions and holidays happen constantly and can get expensive. Honing in on thoughtful and homemade gifts like framed pictures, magnets and ornaments costs more time and less money.

Consolidate credit cards or transfer high-interest balances. You can consolidate multiple credit card payments into one and lower the amount of interest you’re paying every month by applying for a debt consolidation loan or by taking advantage of a 0% balance-transfer credit card offer. The sooner you pay off that principal balance, the sooner you’ll be out of debt.

Refinance loans. Refinancing your mortgage, student loan or car loan can lower your interest rates and cut your monthly payments. You could save significantly if you’ve improved your credit since you got the original loan.

Get a new quote for car insurance to lower monthly payments. Use a free online service to shop around for new quotes based on your needs. A $20 savings every month is $20 that can go toward savings or debt repayments.

Start small and see how big of a wave it makes.

Oh, and don’t forget to remind yourself of your financial goal when you’re craving Starbucks at 3 p.m. But remember that it’s OK to treat yourself — occasionally.

A couple organize tax-related paperwork.
Lindsey Cox and Jonathan Tuttle dig into income- and expense-related paperwork as they prepare to file their taxes at their home in Temple Terrace, Fla. Tina Russell/The Penny Hoarder

What to Do With Your Extra Cash

If you have money left over after paying for your monthly expenses, prioritize building an emergency fund if you don’t have one.

Having an emergency fund is often what makes it possible to stick to a budget. Because when an unexpected expense crops up, like a broken appliance or a big car repair, you won’t have to borrow money to cover it.

When you do dip into that emergency fund, immediately start building it up again.

Otherwise, you can use any extra money outside your expenses to reach your financial goals.

Here are four questions to ask yourself before dipping into your emergency fund..

Step 4: Choose a Budgeting Method

You have your income, expenses and spending spelled out in a monthly budget, but how do you act on it? Trying out a budgeting method helps manage your money and accommodates your lifestyle.

Living on a budget doesn’t mean you can’t have fun or splurges, and fortunately many budgeting methods account for those things. Here are a few to consider:

  • The Envelope System is a cash-based budgeting system that works well for overspenders. It curbs excess spending on debit and credit cards because you’re forced to withdraw cash and place it into pre-labeled envelopes for your variable expenses (like groceries and clothing) instead of pulling out that plastic. 
  • The 50/20/30 Method is for those with more financial flexibility and who can pay all their bills with 50% of their income. You apply 50% of your income to living expenses, 20% toward savings and/or debt reduction, and 30% to personal spending (vacations, coffee, entertainment). This way, you can have fun and save at the same time. Because your basic needs can only account for 50% of your income, it’s typically not a good fit for those living paycheck to paycheck.
  • The 60/20/20 Budget uses the same concept as the 50/20/30, except you apply 60% of your income to living expenses, 20% toward savings and/or debt reduction, and 20% to personal spending. It’s a good fit for fans of the 50/20/30 Method who need to devote more of their incomes to living costs.
  • The Zero-Based Budget makes you account for all of your income. You budget for your expenses and bills, and then assign any extra money toward your goals. The strict system is good for people trying to pay off debt as fast as possible. It’s also beneficial for those living to paycheck to paycheck.
A hand writes financial-related labels on envelopes.
Tina Russell/The Penny Hoarder

Budgeting Apps

Another money management option is to use a budgeting app. Apps can help you organize and access your personal finances on the go and can alert you of finance charges, late fees and bill payment due dates. Many also offer free credit score monitoring.

Step 5: Follow Through

Budgeting becomes super easy once you get in the groove, but you can’t set it and forget it. You should review your budget monthly to monitor your expenses and spending and adjust accordingly. Review checking and savings account statements for any irregularities even if you set bills to autopay.

Even if your income increases, try to prioritize saving the extra money. That will help you avoid lifestyle inflation, which happens when your spending increases as your income rises.

The thrill of being debt-free or finally having enough money to travel might even inspire you to seek out other financial opportunities or advice. For example, if you’re looking for professional help, set up a consultation with a certified financial planner who can assist you with long-term goals like retirement and savings plans.

Stephanie Bolling is a former staff writer at The Penny Hoarder.



Source: thepennyhoarder.com

Six Suburbs for Generation Z

Are you thinking about buying your first home? If you’re a member of Generation Z, you’re not alone. Post-millennial adults have learned a lot from the unexpected delays and disappointments that are keeping 19 million mortgage-ready millennials in rentals. Planning well is one of them.

One question to answer is where you want to live. Conditions for first-time homebuyers vary a lot from one place to another. Affordability, employment prospects, and proximity to friends and family are three variables that can help you decide where to settle. In deciding where to buy a first home, each generation has likes and dislikes that reflect its values and priorities. Recently Homes.com surveyed more than 1,000 members of Generation Z to find out more about their home-buying plans, including what kind of neighborhood they prefer.

The survey found preferences centered around four characteristics:

  • Diversity. More than half prefer neighborhoods and communities that are racially and ethnically diverse;
  • Accessibility. Three out of four want a location that is accessible to work as well as to friends and family;
  • Safety. This is a priority when Generation Z-ers evaluate neighborhoods
  • Affordability. Generation Z is very aware of rising home prices that have kept millions of millennials from becoming homeowner.,

If you haven’t yet settled down and are open to moving, you might be interested in learning about options. In no particular order, here are six suburban locations that rank high in the four characteristics identified by the survey.

Lilburn, Georgia (Atlanta)

Located in Gwinnet County, northeast of Atlanta, Lilburn is a bedroom community with an approximate 30-minute drive to the city. With a population of about 12,000, it grew following construction of the Lawrenceville highway that radiated from Atlanta. Its median income, unemployment rate, home value, and age of its residents are slightly higher than the state average. Lilburn has been recognized nationally as one of the most diversified communities in the nation by Niche.com and one of the safest in Georgia by BackgroundChecks.org. Its population is only 49% white. Hispanics account for 30% of its population, Asians for 20%, and African Americans 18%.

atlanta, georgiaatlanta, georgia

Florin, California (Sacramento)

A city of 47,000 in Sacramento County, Florin is only 5.5 miles and an average commute time of 27 minutes from Sacramento. Florin (derived from “flora” or flowers) is in a rich agricultural district in the Central Valley, not far from the base of the Sierra Nevada. Florin flourished between the late 1890s and early 1900s, producing record crops of strawberries and grapes. After the turn of the 20th century, it developed a size-able Japanese community, which was devastated by World War II and the internment of its Japanese citizens in camps. Today, Florin’s unemployment rate is 3.8%, its median income level is about $20,000 lower than the state average, and its median home price is about equal to the national median. Asians account for 30% of its population, and Hispanics 28%.

Shaker Heights OH (Cleveland)

With a population of more than 28,000 residents, Shaker Heights is only a 25-minute ride on one of town’s two RTA lines or a ten-minute drive from downtown Cleveland. Its nine distinctive neighborhoods feature classic architecture, tree-lined streets and access to a variety of amenities from biking and ice skating to a 200-acre nature center. Healthcare, management, and teaching are the top fields of employment, and its crime rate is close to the national average. Shaker Heights is the sixth most ethnically diverse in Ohio. Only about half of its residents are white, a third are African American, and 5% are Asian. Two-thirds of its residents are college graduates and its median household income is $30,000 higher than the national median. However, its real estate is comparatively affordable. The median home value is about $260,000, about the same as the national median.

Glendale Heights, Illinois (Chicago)

Glendale Heights is a western suburb of Chicago with a population of about 35,000. The city is the most important passenger and freight transport hub in the country with over 30 Fortune 500 companies have headquarters there. It is recognized locally for its economic and cultural diversity, arts and culture and historic preservation. Until 1958, the site of Glendale Heights was mostly rural, but over the years, it has experienced significant economic and population growth. The average commute time to downtown Chicago is about 25 minutes by car. The median home price in Glendale Heights is about $225,000, equal to the statewide median and lower than the median of $263,000 for the Chicago metro. Glendale Heights’ population is 35% white, 32% are Hispanic, 23% Asian, and 7% are African American.

chicago, illinoischicago, illinois

Valley Stream, New York (New York City)

Located in Nassau County on Long Island, Valley Stream is a village of about 40,000 in the town of Hempstead, along the border with Queens. Living in Valley Stream has an urban feel and most residents are young professionals who own their homes. Median household income is about $100,000 and median home values are around $400,000, which is approximately $50,000 lower than the median for Long Island. Valley Stream’s population is 32% white, and 23% are African Americans. Hispanics account for 25% of the populace and 15% are Asian. Valley Stream’s crime rate is about one-third of the average for New York State.

Stafford, Texas (Houston)

Stafford began life in 1830 as a plantation with a cane mill and a horse-powered cotton gin. Today it’s a bedroom community in the greater Houston area with 18,000 residents, a performing arts theatre & convention center, and a Swaminarayan Mandir, one of four temples of the Hindu sect in the US. At $59,094. Stafford’s median annual income is slightly higher than the state median and its median house value is $195,527, higher than Houston’s but far below the national median of $260,000. Its violent crime rate is half as high as Houston’s and is the fourth most diverse community in Texas. African Americans constitute Stafford’s most populous race at 30%.


Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

Source: homes.com

How to Save Money For Your First Home

It’s often said you’ll never forget your first home — and we couldn’t agree more! For most, a home is one of the biggest financial investments you’ll make. While this can seem scary, there are plenty of tips and helpful hints to help you save money for your first home. Our first-time buyer’s guide has everything you need to know from choosing the right down payment option, to how COVID-19 has changed the real estate market. Besides taking your home buying journey through Homes.com, here are a few key things you can be doing to save:

A budget is your best friend

There’s no such thing as “saving too early” — every home buying journey should begin by determining your target price range that pairs with all the must-haves and nice-to-haves you’re looking for. Then, decide what your down payment estimate will be. Your down payment depends on the type of mortgage you decide on and its lender. And if you need private mortgage insurance, your down payment will be smaller. Some loan options will require as little as 3% — but it’s better to go ahead and pay the largest amount possible. The more you pay in the beginning, the less you’ll need to borrow and the less you’ll have to pay over time. This will also lower your interest rate! You’ll also want to factor in closing costs, agent fees and taxes into this budget plan. States also offer first-time buyer assistance programs — check out a complete list here.

(Read More: 5 Things Homeowners Should Know About Creating A Budget)

Make extra debt payments

Lenders look at your debt amount vs. your monthly income to determine if you’re able to afford your dream home. While it seems overwhelming to spend more money while you’re trying to save, this investment will continue to help you down the road. Even if you’re only tackling a small amount, you’re decreasing the amount of overall payments and timeline of your debt. 

woman budgeting for her first homewoman budgeting for her first home

Start “paying” your mortgage now

Think of this as a practice round — every month, after paying your current rent, put the difference between your assumed future mortgage into your savings. The key here is to do this before your other monthly expenses add up. If this is your “last” priority at the end of the month, you’ll constantly make excuses and put your money elsewhere. Don’t get trapped by this idea; save money for your first home before you have to!

(Read More: So You Want to Start Saving for a Down Payment? – Now What?)

Reduce your monthly expenses

This seems like a “no-brainer” and a “no way” all at once. If you’re living paycheck to paycheck, there are still ways to save money for your first home! Examine your monthly expenses and find small ways to cut costs. Whether that’s limiting your eating out expenses or cutting down your grocery bill, setting a small amount into your savings will continue to add up. 

Put your retirement on hold

This seems scary, especially if you’re already contributing to your retirement plan. It’s important to note this isn’t meant to be a permanent fix, but can make a huge difference while you’re saving. An easy way to contribute, but only if you’re not anticipating your retirement any time soon!

Ready to put these tips into practice? We’ll be waiting for you at Homes.com to guide you through your first home buying process. 


Andrea is a recent college graduate who loves writing, social media and coffee! She loves covering celebrity home listings, keeping up with the latest style trends and working with the Homes.com team!

Source: homes.com

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