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Purchasing a Second Home


Can We Make The American Dream Come True, Twice?

Maybe it's a piece of beach that you've been planning to build on, a time share condo you'd like to buy or that duplex in your favorite neighborhood that just went up for sale. Whatever the scenario, we'll help you know what to look for when judging investment properties, give you creative solutions for financing, and offer ways to evaluate that seeming slice of paradise.

Making An Investment In Real Estate

For many Americans, investing means real estate. A second home. A vacation getaway. An income property. Today, the three are increasingly becoming one and the same. Because in addition to being used by the family, these popular home-away-from-homes are also providing significant revenue for their owners in the form of vacation rentals. But, they aren't the only resort property people are investing in. Timeshares continue to be popular despite their drawbacks.

Owning A Piece of Paradise

Owning a piece of a resort property that guarantees you an annual vacation and the chance to use exchange privileges for other properties around the world is an alluring dream. But, for some the reality of timeshare is far different from the dream. Projects go bankrupt, trades for exotic spots don't materialize and those who bought under pressure come to regret their hasty decisions. Here are some things to remember when judging a timeshare opportunity:

  • Try to visit the site and think about whether you'd want to return to it year after year.
  • Take your time and ask questions before you sign.
  • Check into the nature of ownership to determine whether the unit offered is a fee simple or right-to-use unit. Fee simple units are usually more expensive, but they may provide some tax benefits.
  • Be realistic about exchange programs. Remember that exchanges rate participating units by desirability and other factors; buyers in a project that is not highly rated by an exchange cannot expect to "trade up" to fancier units, more appealing locations or better times of the year.
  • Check on annual maintenance fees (varying from $125 to $375 a month) and remember that the fees may rise as the property ages and upkeep becomes more expensive. The fee may not cover major repairs or other costs associated with normal wear and tear.
  • Hold onto your payment and make sure your money is held in an escrow account until your title to the unit you are buying is free and clear.
  • Ask yourself if you can afford the travel costs and other expenses of a vacation every year, either to your unit or to one for which you have exchanged. Think about whether a traditional vacation may be more appealing or less expensive.

Picking The Right Property

Always remember that property you consider for investment should be located in places where people want to live or recreate. Communities and their neighborhoods normally go through four-stage cycles, progressing through growth, maturity, decline and finally rehabilitation. Traditionally property values rise with growth, stabilize, then typically fall during the decline stage. The most dramatic price increases usually occur during the comeback rehabilitation phase. So, whether your interest is in recreational real estate or urban housing, you should always make a careful study of the property's location with these kinds of inevitable cycles in mind. Here are some tips that can help you uncover the best rental deals:

  • Have your financing arranged before you start
  • Target out-of-town owners
  • Get property leads from your city's municipal inspections department
  • Read the classifieds
  • Advertise your interest
  • Talk to other rental property owners

Taking On A Second Mortgage

If new conventional financing is required on the purchase of income-producing property, expect to put a substantial amount down—at least 30% plus closing costs that run higher than the average single family home. However, there is room for creativity:

  • Seller-provided secondary financing
  • Private investors
  • Mortgage investors
  • Government help
  • VA loans
  • Insurance companies
  • Pension funds