Though down from its peak just a few months ago, demand for second homes remains high.

Remote Work Continues to Spur Demand for Second/Third Homes

Despite demand for second homes dropping in February 2022, people still want to buy second (and even third) homes at a rate of +35% over pre-pandemic levels.

According to Kelly Mangold, a principal with RCLCO, “We have seen some interesting changes, especially among millennials in their 30’s and 40’s who have been gaining a lot of wealth.  The rise of remote work changed the calculus for a lot of families for the ability to live somewhere else for parts of the year.”

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Favorite Second Home States, according to RCLCO

  1. Florida
  2. California
  3. Texas
  4. New York
  5. North Carolina
  6. Colorado
  7. Arizona
  8. Georgia
  9. Hawaii
  10. South Carolina
  11. Virginia
  12. New Jersey
  13. Pennsylvania
  14. Washington
  15. Massachusetts

Tips to Navigate Costs of Buying Second Home

We all know the Federal Reserve increased mortgage rates for the first time in over two years on March 17.  The Fed also projected six more rate hikes for this year.

Lock in Mortgage Rate ASAP

The average rate for a 30-year fixed mortgage hit 4.16% on March 30, up from 3.09% one year ago, according to Freddie Mac.

Want to know what rate you and/or you clients may get for a second home in every state?  Check out the online tool available via the Consumer Financial Protection Bureau. 

Rates in this tool are updated every Wednesday and Friday.

Also, compare loan estimates to get the best deal.

Negotiate Closing Costs

Most closing costs are standard such as appraisal fees and pro rata property taxes but some fees on third-party services, such as pest inspections, are negotiable.

One upfront cost on buying second homes is about to jump:  the Federal Housing Finance Agency (FHFA) announced in January that on April 1, fees on a second home sold to Fannie Mae and Freddie Mac are to increase as much as +3.9%.

For example, a buyer with a $300,000 mortgage and loan-to-value ratio of 65% will pay an additional $4,875, according to the National Association of Home Builders.

While there’s nothing to do about this upcoming FHFA additional cost, negotiate third-party service fees included with closing costs.

Scrutinize Maintenance Fees

Typically, planned developments and condos have homeowners’ associations that maintain the finances of the particular community via monthly maintenance fees.  Since banks consider HOA fees when determining the size of a mortgage, the higher the HOA fees, the smaller the loan for the borrower.

Agents can help their buyers find out what the HOA fees are and whether or not the HOA has an emergency rainy-day fund for emergencies.  Banks want information about HOA reserves to ensure their borrowers don’t experience some out-of-the-blue assessment that could jeopardize a borrower’s ability to come up with their monthly mortgage loan.

Take Advantage of Tax Breaks

If the second home is intended for personal use, tax breaks are available to homeowners including deductions for property taxes and interest on mortgage payments.

Owners of investment properties may qualify for other tax breaks including deductions for maintenance and depreciation.

Also look at things such as enhancements to utilities via energy credits such as solar use.

Make sure to work with a tax attorney/accountant and/or a certified financial planner via any tax breaks that could be advantageous.

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Thanks to The New York Times.


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