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What you need to know about buying your second home

Second Mortgage Sign from Home

Purchasing a second home is a wise financial decision for several reasons. This long-term investment adds variety to your financial portfolio, appreciates over time, has the potential to generate profit, and can also be enjoyed for your leisure.

Buying a house in Texas, for example, can be beneficial in the long run. The housing market is booming in the Bryan-College Station area alone, with the average sale price increasing by 19% from January 2021 to 2022. And it’s easy to see why.

Home to the Texas A&M University System, as well as a variety of scenic parks and trails, the Bryan-College Station area attracts plenty of people, including students, professionals, and tourists. Should you decide to turn your second home into a rental, you have a steady market to tap into.

But before you start your property search in Brazos County with a full-service real estate team, here are some things to consider when buying your second home.

Does it make financial sense?

Whether you’re new to property investment or not, it’s crucial to ensure that your decision to buy a second home is a practical financial move.

As with any home purchase, you will need to have a good credit score and enough cash reserves to qualify for a mortgage and shoulder closing costs, among other things. Take note that mortgage lenders often require a higher down payment (at least 25% and above). They also tend to impose higher interest rates on second homes because of the risks. Then, there are current and future monthly expenses as well.

The best and simplest way to gauge your financial capability is to add up all your monthly payments – electricity and utility bills, property taxes, homeowners’ association fees, general upkeep costs, other loan payments, household expenses, etc. – and subtract the sum from your monthly post-tax salary. The resulting amount would be your financial resource in paying for your second mortgage.

Debt-to-income ratio (DTI) is the amount of debt you have vis-à-vis your income. This is one of the most stringent requirements you’ll have when applying for a second home mortgage. Most mortgage lenders or brokers will require a DTI of 45%, so a quick way to check if your DTI holds up is to add the monthly debts you have and divide it by your monthly pre-tax income.

Rental maintenance

If you’re planning to turn your second home into a rental property, you should also prepare for the costs that can come with it. Maintenance and repair costs will eat a large chunk of your budget whether you decide to open a short- or long-term rental.

As with your primary residence, it’s also important to have a rainy-day fund and an emergency fund. These will allow you to address certain issues with the rental without fail even if your income or other cash reserves are disrupted.

Your responsibilities as a landlord

As a landlord, your tasks go beyond making sure your rental is safe and habitable. You will also need to be well-versed in Texas landlord/tenant laws. Every move you make, from setting rules and restrictions to handling disputes and repairs, should be well within the law.

Of course, being a landlord for your investment property can be difficult, especially when your primary residence is in another city, county, or state. In this case, it would be wise to hire a highly reputable property management company to handle all the financial and daily aspects of your rental properties in Bryan-College Station and the rest of Brazos County.

Protecting your investment

Even before you close on your second home, it’s important to take steps that will protect your investment. While going through escrow, make sure that the property passes inspection before purchase. Doing this can help you address repairs and issues early on and negotiate their costs with the seller.

Your mortgage lender might also require you to get insurance for your home, which will protect your investment from damages caused by theft and natural disasters, as well as cover any costs for accidental injuries to visitors or tenants. If the rental route is the path you’re taking, it would be wise to get a landlord insurance.

Here’s a list of trusted general home inspectors, appraisers, and insurance companies who can help you ensure the security and longevity of your property investment.

The best way to protect your property investment is to work with expert agents and property management teams from Berkshire Hathaway HomeServices Caliber Realty. Get in touch with them today by calling 979.694.8844 or emailing sales(at)bhhscaliber(dotted)com.

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