What to Know about Buying a Second Home?
You likely hear the term "second home" here and there, but if you are considering buying a second home it is important to understand what qualifies. A second home requires certain criteria for tax purposes and is different from an investment property.
We have the answers to some frequently asked questions below to help you get started. Want to start looking for your second home in Hawaii? We are here to help.
What is a Second Home?
A second home differs from investment properties in that you must plan to occupy it for a portion of the year. It cannot simply be a property you own and leverage as another stream of income, but must be in use for at least part of the year as a secondary residence or a personal vacation home.
The amount of time you spend in the home can vary. You may use it as your home base during certain seasons. For example, some people who live in a state with a harsh winter choose to buy a second home on Maui, where they can escape for a few months out of the year and enjoy year-round sunshine without totally relocating.
In other cases, a second home may be a place your travel to for a week or two a few times a year. Whatever the case, it must be a property you personally occupy at some point during the year to be considered a second home and not just an investment.
Mortgage Requirements on a Second Home
Unless you are prepared to pay cash for your second home, there are some stipulations to keep in mind for second home mortgage funding. It is common to have a lower mortgage interest rate on your second home than on a primary residence mortgage. The loan will likely include what is called a Second Home Rider, with requirements such as:
- the borrower will occupy the home and only use it as a personal residence, not an income property
- the property will be exclusively available to the borrower at all times
- the property cannot be a part of any sort of timeshare or rental pool
In other words, in order to qualify for a second home mortgage, you must be willing to use the property exclusively for personal enjoyment, not as an extra stream of income. Investment properties of any type require a different type of funding.
Taxes on Second Homes
As you plan ahead, be sure you understand the difference between taxes for a second home and an investment property. Investment properties come with a variety of tax benefits that are not available to those who own a second personal property. For example, the mortgage interest and cost of furnishing an investment property are both tax deductions. On a second home, the mortgage interest is often deductible, but furnishing the home is not, as it is not a business expense.
Is a Second Home Right for Me?
Buying real estate in Hawaii is nearly always a good investment, with a steady increase in demand as one of the world's most desirable locations. If you are not sure whether an income property or a second home is the right choice for you, consider what kind of funding you would like to use and whether you are comfortable listing the property for other guests when you are not using it. A second home will provide you an exclusive personal property, always available to you and fully personalized inside. There is simply nothing like having your own place to land when you travel to Hawaii.
For more information about finding your second home on Maui, contact us any time!
Dreams to Reality is your source for amazing homes on Maui. Don't think you can afford a home in Hawaii? Think again! We can help guide you through the approval process and find the perfect home in places like Kihei, Lahaina, and Kaanapali, or any area on Maui!