MONEY MATTERS

Housing markets across the country are still seeing record levels of activity, with price increases to match. The question going through many people’s minds has become, “Is it still a good time to buy?”

Though inventory remains low due to the continued high demand and interest rates have begun to rise, there are still opportunities to be seized. With this in mind, it’s important to remember that the keys to making a smart second-home purchase are planning and flexibility.

As a mortgage consultant with Valley Bank, I have seen how clients are benefiting from a more thoughtful approach to their secondhome purchase. I’ll walk you through some of the top considerations I discuss with my clients.

Consider both fixed-rate and adjustable-rate mortgages

Know how you plan to use the property If you’re buying a second home to use primarily as an investment property, you’ll likely have to come up with

a higher down payment and show that you have more substantial reserves. Some lenders require proof of your ability to make at least six months’ worth of payments. Consult with your loan officer at the start to determine how the property will be classified (second home or investment) to identify all the requirements. Fixed-rate mortgages have long been a default selection by many who planned to purchase a second home and keep it for 30plus years before handing it over to their David Ballard children. Adjustable-rate mortgages are becoming a more appealing option in some cases; however, they offer lower interest rates than fixed mortgages for an initial time period, before the mortgage rate changes. More recently, many homeowners are holding on to second-home properties for shorter time periods, refinancing within five to 10 years of their purchases, or

Is it still a buyer's market?

paying off the mortgages faster using equity from their primary homes. For these owners, an ARM is appealing to keep monthly payments lower in the short-term. Depending on your plans and financial situation, it could be a more compelling option. Extend your timetable and budget for construction

Whether it’s a new build or an expansion of your home, the COVID-19 pandemic and subsequent inflation has created availability issues for supplies and manpower alike. Logistical delays due to supply chain problems have become a norm that anyone considering a construction project must face. Factor into your initial plans some additional budget and time to account for these factors from the start.

Decide if a home equity lin of credit could help

Whether building or buying your second home, you may be able to draw from a line of credit based on the equity you have in your primary residence. In some situations, it might make sense to pay cash for a second property if your line of credit is big enough. There are lender requirements, such as having a minimum amount of equity in your primary home to get a line of credit, so connect with a home loan specialist to see what you qualify for.

Keep things simple where you can

There are a number of factors that can make buying a home more complex, so it’s helpful to simplify when you’re able. Even things such as how and where you pay your mortgage make a difference. Many homeowners have experienced their mortgage being sold to another lender (sometimes multiple times) over a few years. Some lenders continue to service mortgages even after they’re sold, ensuring that a client’s payment process and escrow accounts stay consistent.

~ David Ballard is a Birmingham-based Valley Bank residential lending consultant.