By Stephen Fournier – KeyBank Central New York Market President
While buying your first house is a big milestone, buying a house for the second time can be an even more significant purchase. That’s because first-time homebuyers often select a “starter house” that will work in the short term; however, it doesn’t always meet their long-term needs. In contrast, a second-time homebuyer may be looking for a permanent place to raise a family or a rental property that can generate long-term revenue.
Why Buy a New House?
There are many reasons why someone who already owns a home might shop for a house again. Perhaps they need to relocate to a new area because of a job opportunity or a desire to be closer to family. Another reason is that as families grow, they might find that they need additional bedrooms or a bigger backyard. Some parents might choose to move to a new home in a preferred school district as their children get ready to attend school.
In other cases, people buy a new home to save money or promote long-term financial wellness. For example, the current home might be larger than they need and expensive to maintain; in this situation, the homeowners might choose to downsize to a more affordable residence. Or, they may choose to move to a neighborhood with lower property tax rates.
Finally, people may buy a new house to generate rental income, either by renting out the new property or by moving into the new home and renting out their previous property.
Deciding What to Do With the Previous House
When buying a house for the second time, you may be wondering what you should do with the first home. For many people, the answer is to sell it and use the proceeds of that sale to make a down payment on the second house.
However, selling the first house is not the only option. Other possibilities are to continue living in the first house and use the second as a vacation home, or rent it out to tenants and generate income. One can also buy a second house for the sole purpose of renting it out or living there part-time. Speak with your mortgage loan officer so that you have a better understanding of what best fits your situation.
Tips for Buying a House the Second Time Around
A second-time homebuyer should keep the following tips in mind:
If you haven’t checked your credit recently, you shouldn’t assume that your score is the same as the last time you bought a house. Check your credit report at AnnualCreditReport.com to make sure your credit history is accurate before applying for a mortgage.
Get pre-qualified – this will help give you a better idea of your budget when house shopping, and you’ll be prepared to place an offer when you stumble upon your next home.
You may get a better deal on a house that needs repairs. Research the cost of work the property would need on sites like HomeAdvisor so you can determine if a drop in the price makes up for the amount you’d spend fixing the house.
If you’re selling a house before buying a new one, consider negotiating to rent the house back from the new buyer for a month to give yourself time to close the sale of a new home. Alternatively, you can move into a temporary rental and put furniture in storage.
As with any time you buy a house, it’s a smart move to research available mortgages and go over your budget to see what mortgage payments you can afford. If you plan to use a home equity line of credit in your new home, consider a combination mortgage, which combines a traditional mortgage with a home equity loan. A combination mortgage gives you greater flexibility and may allow you to borrow a larger amount.
About the author: Stephen Fournier is President of KeyBank’s Central New York Market. He may be reached at either 315-470-5096 or [email protected].
How to Reduce Closing Costs on Your First Home
Having an early idea of the closing costs you’re likely to face gives you time to come up with potential ways to lower some of them. Talking to the seller, shopping around, and financing are three effective ways to reduce closing costs.
Talk to the Seller: If a seller is looking to sell their home faster, they may also be willing to cover the closing costs. Doing so could be mutually beneficial as there are specific tax benefits that the seller may be able to take part in. A seller may also be willing to cover closing costs if you pay full price for a home or if you purchase the house as-is, without requesting any specific fixes.
Shop Around: For some of the items on that laundry list of fees, you can shop around to find your own best price. These include the home inspection, title search, homeowners’ insurance, and — depending on certain factors including your state laws — title insurance. You’ll receive a list of approved vendors from your lender, but you can choose others that meet the lender’s criteria.
Finance the Fees: Another potential way to reduce the closing costs that you’ll pay upfront is to roll some of them into your mortgage loan amount so that you pay them over time instead. Some lenders provide this option through special programs targeting first-time homebuyers as well as those who are refinancing a home. Depending on your lender, expenses eligible for a rollover may include origination fees, credit report fees, appraisals, title insurance, courier fees, and other administrative costs.
