Lost among the news about the current sub-prime mortgage meltdown is the housing market for second homes. Though the news media is focusing on the problems people are having with their first homes, there is plenty of news not being reported about vacation homes.

Vacation homes are those secondary houses people own at the shore, lake, or other favorite vacation spot. Most are small residences though some owners have lavish estates rivaling their primary home in size and in value. You’ve seen these homes spring up along prime waterfront property over the past two or three decades — houses which dwarf the cottages which once dotted most communities.

If you are already familiar with a particular vacation market, you probably have witnessed a recent trend: plenty of homes are for sale and those that are selling are going for a heavy discount. One of the most stressed markets offering fantastic deals is Miami where a spate overbuilding has forced prices down in a hurry.

For people wanting to come away with a great deal there are some things to consider:

Take Your Time — Finding a vacation home for a very low price isn’t difficult to do. But, pouncing on the first property that comes along can show that you are being too hasty.

Because you’re in a buyer’s market you’ll want to determine a few things first:

• Are you familiar with the area where you want to buy?

• If purchasing a condo, how many units are vacant? There could be a reason why your unit is going for a song — the association managing it could be bankrupt.

• How often do you plan on visiting your second home? Do you plan to rent it out? Would you do better simply renting a home every year instead?

• What are some of the related fees to managing the property — i.e., garbage removal, landscaping, outside maintenance, etc.?

• Based on the information available, will your second home appreciate in value? You may have no plans on selling, thinking that your children will enjoy your home when you are gone. Don’t count on that — they may not be interested in maintaining the property later on.

Financing Your Purchase — many second home buyers tap the equity in their first home to buy their second home. But, you may not want to put your first home at risk by purchasing a vacation home. Consider:

• Will you be able to find financing for a vacation home?

• What rates are being charged? Some lenders avoid second home financing while others specialize in financing vacation homes. Will you have to pay a premium rate in order to finance a second home?

Insurance costs can be a deal breaker especially for homes along the ocean. When Florida and New Orleans were ravaged in 2004 and 2005 by a series of hurricanes, insurance companies jacked up their rates, sometimes three- or four-fold to cover their risks. Can you afford to pay $4000 in homeowners insurance annually on your beach property?

The good news is that many second home markets are likely to be depressed for the next few years, taking the pressure off of you to make a fast decision. Look around, shop around and you’ll come up with a deal that is fantastic and one you can live with for many years.

Tags: beach house, beach rental, lake house, Miami, resort, second home, vacation home

This article is the first in a series of occasional articles discussing the purchase of a second home whether for vacation or investment purposes.

If you are in the market for a second home, you know — that beach or mountain house you always wanted — 2008 is shaping up to be a very good year for you to make your move.

Although some homeowners are finding it difficult to even keep up with their monthly payments, a significant number of consumers are looking at expanding their real estate holdings by purchasing another home.

Home Prices Have Declined

What is fueling the demand for second homes? Answer: the recent decline in home values has suddenly made buying a home at the shore much more affordable.

In the April 2008 issue of Money magazine, Your Money & Your Life columnist Jean Chatzy shared her desire to buy a home on Long Beach Island, New Jersey. This popular summer beach destination has seen home prices increase by as much as 25% annually until last year when the market reversed course, sending prices down by 13%.

Know Your Housing Market

Of course, the drop in prices in one vacation market doesn’t translate into an across-the-board decrease everywhere else. If you are searching for a bargain, then you’ll need to do your homework before investing:

• Obtain real estate comps (comparables) for homes in your desired market. A knowledgeable real estate agent can get this information to you and provide valuable information about local market trends.

• Read up on the area that interests you. Let’s say that you want to buy a home in Kure Beach, NC. Google the town and find articles discussing the town’s future, taxes, building rights, etc. Visit the town’s website for additional town news.

• Visit again and again. You may like a certain community in the summer, but not in the off-season. If you plan on spending time at your second home in the winter months, will there be enough for you to do to avoid boredom?

• Talk with a mortgage lender. You may be in terrific shape financially, more than able to meet your current obligations, with plenty of cash left over. Visit a mortgage broker now to see just how much home you can afford — financing rates for second homes have dropped in recent months.

Shop Around For Your Second Home

Finally, if you have decided that a second home is right for you, then shop around. With home values down in many areas, you could shave tens of thousands of dollars off of the asking price for some homes that an owner all to willing to quit. Your mortgage pre-qualification letter will come in handy at this time, just the right tool to help you make your best deal in 2008.

Resources

Buying A Home

Home Purchase Loans

Mortgage 101

Tags: beach home, beach house, mountain property, refinance, second home, shore property