I’ve been thinking about buying a second home in Cavite. In addition to having a favorable location in the south, the communities there boast a wide variety of high-quality homes that can accommodate any size of family.

Buy what do we need to consider before purchasing a second home?

A second home can be both a place to go on vacation and an investment, since it is easy to rent out when it is not being used. But, as with most home purchases, if you want to buy a second home, you will almost certainly need a second mortgage.

When looking for and buying a second home, there are a lot of things to think about. These include the home’s purpose, how it will affect your taxes, and how you will pay for it. Working with a financial advisor can help you answer questions about buying a second home and how it will affect your financial plans.

However, despite the fact that you have previously been through the process of purchasing a home, you will still need all of the guidance possible to make the best choice. Is it a wise investment to purchase a second home? Will the return on investment be satisfactory? Before you jump into the real estate market and purchase a second home, there are a few things that you need to take into consideration first.

Before you buy a second home, you should think about these seven important things:

Are You Ready to Buy A Second Home? Here are 5 Things To Consider
My first home when it was still under construction back in 2019.

1. Can I Afford A Second Home?

It may seem like a silly question to ask, but can you afford to buy a second house? Spend time learning about the requirements before making a mortgage application for a new home. This way, you’ll be better prepared when you submit your mortgage application.

There are strict credit requirements for a mortgage, and things get worse if you buy a second home. As a homeowner, you should be aware of this. Of course, your  ratio of debt to income will be an important factor, and if you have two mortgages, you may find it harder to keep a healthy ratio. For starters, you’ll need to shell out at least 10% down payment on a vacation home, and possibly more if it’s also an investment property. Also, a second home needs to be insured, so once you’ve decided to buy a second property, you should talk to your insurance agent.

2. How Will I Pay For My Second Home?

First, what’s the difference between a loan and a mortgage?

The money that was given and received in this transaction is called a loan. The person who lends money is called a creditor, and the person who borrows money is called a debtor. The The borrower has to pay back not only the loan amount, but also an extra fee called interest. Most loans are paid back in monthly installments, and the length of the loan is usually determined ahead of time.

According to Investopedia, “the term mortgage refers to a loan used to purchase or maintain a home, land, or other types of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property serves as collateral to secure the loan.”

A borrower (debtor) must fill out a mortgage application with the lender (creditor) of their choice and make sure they meet a set of requirements, the most important of which are minimum credit scores and down payments. Mortgage applications have to go through a strict underwriting process before they can move on to the closing phase.

The debtor promises to pay back the loan by giving the creditor something of value. In a mortgage, the property is used as security. The creditor can take your home if you don’t pay your mortgage. This is called “foreclosure.”

Consider qualifying for a mortgage.

Lenders see second homes as riskier, whether they are used for vacations or as investments. Most of the time, there are higher minimum credit score requirements and lower maximum debt-to-income ratios than for a primary residence.

On your second home, you’ll likely need to make a bigger down payment, which could be anywhere from 10% for a conventional loan to more than 20% for loan. That big down payment can substantially increase your upfront costs, but potentially lower your lifetime costs if it results in a better rate.

You can use this home affordability calculator to get an idea of what you can afford as you start thinking about buying your second home (don’t forget to convert GBP to PHP). On the website, you can also find tips and tricks for making mortgage payments and understanding loan terms.

And you can use this mortgage calculator to find how much you will need to pay each month in order to pay off your loan in a specific number of months and years. A remortgage calculator is also available should you consider making an adjustment to your mortgage (don’t forget to convert GBP to PHP).

Carefully consider the terms of your loan as well as your down payment.

For the most common type of mortgage, a fixed-rate mortgage, you can make payments over 15 or 30 years. It all depends on how much you can pay each month, but 15-year mortgages have lower interest rates than 30-year mortgages.

If you’re buying a second home before you retire, the 30-year payment plan might be a good idea so that you can spend less each month. But with a 30-year mortgage, you will pay more in interest than with a 15-year mortgage. Keep in mind that you may need to refinance your first mortgage to lower your monthly payments on your first home in order to qualify for a second mortgage.

3. How Will Buying A Second Home Affect My Taxes?

You will also need to know how the property will affect your taxes. If you rent out your home, you’ll have to pay taxes on the money you get from renting it out. If you own the house, you might be able to deduct the interest on your mortgage, property taxes, repairs, depreciation, and other cost of operating it. As a landlord, it’s important to keep accurate records of your income and expenses throughout the year so that you can fill out your tax return correctly.

4. What Expenses Should I Expect When Buying A Second Home?

At your second home, you’ll have to pay for both unexpected and planned expenses, just like at your primary residence. A budget for your home needs is a good idea. If you have two homes, this may be an even more important step because of the increased expenses. Keep in mind that you’ll have to pay property taxes, insurance, and maybe even dues to a homeowners’ association. When buying a home near the beach or in a flood zone, you’ll need to look into extra insurance like flood insurance. Lastly, if you plan to rent the house out, you should make sure you have landlord insurance.

Think about how much it will cost to buy a second home.

Here are some of the costs you may want to include in your monthly budget. The actual figures will depend on how you use the second home.

  • Insurance: Homeowners insurance is usually more expensive for a second home than for a main home. You may also need a different type insurance depending on how often the second home is used and whether you rent it out for a short or long time.
  • Utilities: If the house is rented, the renter may be responsible for paying for utilities (as long as you have a tenant). But if it’s empty for a long time, you’ll need to find a balance between the energy use needed to keep the house habitable and what will keep your monthly bills from sky rocketing. You might also consider buying a security system.
  • Maintenance: This could include both major repairs and regular maintenance; even if the home is vacant, your neighbors will appreciate a neatly trimmed lawn. A property manager can be a big help, but they can also be very expensive.
  • Vacancy: Considering renting out your second home? If you don’t find tenants right away, or if your short-term rental experiences an unexpected dry spell, make sure you have enough money to cover your expenses.
  • Travel: It’s important to think about the cost of getting between your main home and the second home you’ve bought, especially if the distance is far.

Consider the situation from a different point of view. What about your other financial goals, such as saving for retirement or paying off high-interest debt, have you already met or exceeded? Will buying  a second home not hinder you from achieving your goals, even if you have to pay additional costs?

5. Where Is The Second Home Located?

You want to make sure that the location is suitable for your needs, regardless of whether you are buying a second home for the purpose of your own personal enjoyment or as an investment property. It is possible that you will not make as much use of your vacation home during the course of the year as you would like if you have to travel a significant distance to get there. And if you buy a rental property in an area that isn’t very desirable, it’s possible that it will sit empty for several months at a time. This will force you to pay the second mortgage out of your own pocket rather than collecting rent from tenants. 

For those who plan to use their second home as a source of income, a desirable location with easy access to a variety of amenities and entertainment options is a must. Additionally, the property’s location can help you evaluate how likely it is to increase in value over time.

You could buy a second home to use as a place for retirement or go on vacation. If so, you should look for a villa or row house in a quiet and peaceful neighborhood. But hospitals and convenience stores still need to be within a reasonable driving distance. When it comes to buying a second home, you have almost unlimited choices. Because of this, you should make sure that the location of the property fits the home’s function and purpose.

6. Who Will Maintain the Property?

To safeguard your investment, you’ll want to think ahead about who will look after the property.   If the investment property is close to your primary residence and you’re handy, it might be easy to take care of as long as you have the time and will to do so. If the property is far from your primary home, you should think about how it will be taken care of. Even more so if the property is in an area where typhoons and other natural calamities are common.

Your second home will need to be ready for any kind of bad weather that might come its way. Even if the house is solely for your personal use, you can ask a neighbor to keep an eye on it while you are away. If you want to rent out the property, hire a property management company so you don’t have to worry about every little thing from afar.

7. What Is The Return On Investment?

The potential return on investment is one of the most important factors to consider when purchasing a second home. Location, the demand for rentals in the area, and local social infrastructure, such as highway and rail access to nearby cities, are important considerations. This has been the case because commercial real estate has a higher return on investment than residential real estate. In the long run, it is more profitable to invest in a home with a high return on investment. A good strategy is to invest in rapidly appreciating areas where the initial investment is lower than in established neighborhoods. Additionally, as time passes, there is more to value.

Many people make a big financial decision when they buy a second home. Before you look for a house, make sure you can afford one. Before making a choice, you should look at mortgage rates and your own financial situation. When making this choice, you should also think about how it will affect your taxes to rent out an older home instead of having two homes where you and your family are listed as the main residents of both. After all the hard work you’ve done, you deserve to relax in your dream vacation home, and if you plan your finances well, this is very possible.

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Are You Ready to Buy A Second Home? Here are 7 Things To Consider
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5 Comments

  1. avatar
    May De Jesus-Palacpac says:

    We are still in the process of building our first owned home, hihi. But yes, we do dream of getting a couple more in spots we love going to as a family — like Bagiuo and perhaps in the Visayas areas. Thanks for these reminders, will note them.

  2. avatar
    Blair Villanueva says:

    We are looking for a second home in the Philippines where we can call our own. Checking for foreclosure properties are good, and even better from direct private sellers.
    Although we admit that buying properties in the Philippines is very tough and complicated compared here in Australia.

  3. avatar

    There are indeed a lot of things to considere when buying a house, what more if you are planning to buy 2nd home. I am currently in the process of paying my first ever house and hopefully in the future, be able to pay for our second!

  4. avatar

    I agree! Madaming need i-consider when buying a house. Hopefully I can get a house soon! <3

  5. avatar
    Wendyflor says:

    true to these… paying property taxes is part of our annual to-do list when we go home (wala kasing mapag-utusan, hahaha… hindi pa ganun ka develop ang online sites ng mga munisipyo for payment)…. medyo sakit din sa ulo if you intend for these property/ies for rental especially with the effect of the pandemic. So, yun medyo heavy ang responsibilities of owning/buying a second home/property.

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Polly Amora is the señorita behind GoldenIslandSenorita.Net and the general manager of a privately-owned company in Manila, Philippines. She is a lifelong learner who is very outgoing, speaks four languages, is loud and outspoken, and loves to have adventures in the mountains, on the beach, and in the city. You can throw her anywhere, and she'll handle it like a pro. Ice cream and beer are two of her weaknesses.