A one-unit property owned by an individual, occupied by the borrower for some portion of the year and not subject to any timesharing ownership arrangement. The property must also be in a location where it can function reasonably as a second home.
An American dream is to own a home. For some, the dream extends to owning a second home in the mountains, on a lake or near the ocean. It can be a place for vacations, family gatherings or just relaxation.
A second home has some specific rules associated with it in order for the potential owner to obtain financing, though. For example, timeshares are not considered second homes. Also, you have to actually use the second home some time during the year. That requires that you be able to actually get to the second home. In other words, it must be accessible to you.
Financing for a second home is different from a mortgage for a primary residence. An important point to remember is that a loan on a primary residence will generally have a lower interest rate than one for a second home. Therefore, it can be smart to use the primary residence to help you to buy the second home.
Cash-out refinancing can help with this. By refinancing the mortgage on your current home to a larger mortgage, you can get cash back from your equity. You can then use that equity to buy a second home. You might even be able to pay cash for the second home, if you have enough equity. Or, if you lack enough funds or the desire to do so, you can make a sizeable down payment so you need a smaller loan for the second home. This is important since your interest rate will probably not be as good on the second home.
Owning a second home is not just for the rich and famous. Many average Americans have found it to be an obtainable goal. It is important to remember not to over-stretch yourself financially, though. With a second home, you can often rent it out for some of the year to vacationers in order to help you with costs. Be sure to talk to your tax advisor about that since some states have interesting tax laws on second homes, such as taxing the furniture in it.