News alert: Tax laws for second-home owners have changed, which could affect whether you can actually afford the investment and what you can deduct on your taxes.

So, whether you’re buying a second home for profit or pleasure, here’s what to consider before making an offer:

Interest rates: The rules for buying a second home are a bit more complex than when you purchased your first, so expect to pay a higher interest rate. However, if you’re planning to use the house as a second home, you may be eligible to write off the paid interest on your taxes up to a certain amount.

Payment plan: Before you start seriously looking, figure out how much you can comfortably afford to pay each month; this will help you narrow your home search and determine if you should go with a 15- or 30-year mortgage payment plan for the second home. Our online mortgage calculators and home loan experts can help you with the math.

Down payment: Expect to put down more than you did for your primary residence—so ensure you have 20 percent saved as a down payment before buying a second home.

Tax considerations: As tax laws change, consult a trusted tax advisor to help you determine what you can expect to deduct or must list as income on your taxes. For example, if you’re planning to rent the second home, you’ll have to list all rental income but you can deduct all rental expenses.

Additional expenses: Maintenance, appliances, utilities, property taxes, homeowner fees and cleaning costs—just to name a few—will be based on the second home’s location and purpose. Make sure to do your research.

Get help understanding how a second home will affect your existing insurance coverage.

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Insurance policy: Your insurance policy for your first home won’t cover your second—so prepare to get a second home policy. And if you’re planning to invest in a beachfront property, know that it will come with a higher insurance risk.

State laws: Buying a second home in a different state? Its laws will likely differ from the state you currently reside in, so make sure you understand the differences and how they may impact other factors, such as real estate taxes.

Credit score: When qualifying for a second-home mortgage, you’ll likely need a good credit score—typically above 700—considering the higher cost of living to afford a second home.

Debt-to-income ratio: You may not apply for a second home if your debt-to-income ratio exceeds a certain percentage of your income—usually 43 percent, although it varies by lender.

Documents: If you’re buying a second home, lenders will assume you have financial stability—therefore, prepare to gather the applicable paperwork to show all assets and income.

Ready to Take the First Step?

Get expert guidance through the process of buying a second home by speaking with a home loan professional today.

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