Buying a Vacation Home in New Braunfels
Buying a vacation home is something many people dream of. It is a place to get away from it all, kick back, and enjoy “the good life”. These dreams can often overshadow financial considerations, but when you consider buying your vacation home, make sure that you have explored not only how you will pay for it, but how much money you will have to put into it to maintain it as well. It’s also wise to keep in mind that, when purchasing a vacation home, tax implications and financing options are different than purchasing a main residence. Once you have decided that you have your heart set on a New Braunfels vacation home, make sure that the amount of enjoyment you will get from it will meet or exceed your expectations for a vacation home. Think about how often you will visit the home and realistically measure the price in relation to the enjoyment you will get out of it. If you know you will be able to visit often and will enjoy it more than it will financially hinder you, start to take a look at the next steps: buying your New Braunfels vacation home!
One of the first thoughts that come to mind when buying any type of property, let alone a vacation home, is the down payment. Generally, with a main residence, a buyer can put as little down as 3%. However, vacation homebuyers are often required to make a down payment of 25% to 50%. Use this percentage to help figure out how much you can afford for a down payment. Knowing this will also help you determine the affordable price range of the vacation home. Paying the down payment in cash is always the best option, but a home-equity line of credit, drawn on the buyer’s primary residence is another option to consider. If you do consider this option, keep in mind that this will raise your debt-to-income ratio.
Financing the loan How will you pay for the home? Some vacation home buyers are able to pay cash. If that is not applicable to you, financing the home through a lender is an option. Some stipulations that you need to be aware of if you go with a lender is that you will be expected to stay within the debt-to-income limits set by Fannie Mae and Freddie Mac. This means that your total debt payments, including all mortgages, can't exceed 36% of your gross income. To calculate DTI, add your total amount of debt payments per month (excluding utilities) to your estimated second home payment, then divide that number by your monthly income before taxes. The resulting number is your DTI.
Another factor you will have to look at when financing your vacation home is your credit score. Vacation home financing requires a score of 725 to 750- higher than that of a primary residence.
Other Financial Considerations
With so many rivers and lakes around New Braunfels vacation homes, you will need to find out if you will need flood insurance for the property. If so, this will be an extra cost in addition to the mandatory homeowners insurance.
Are you planning on renting out your New Braunfels vacation home? This can be an excellent source of income while you are not using the home, however, you'll want to read IRS publication 936, "Home Mortgage Interest Deduction" and publication 527, "Residential Rental Property" to learn the current tax codes on rental property. If you are renting it out more than you are using it, you’ll want to consider hiring a property management company to take care of the risks and expenses, especially if the home is far from your primary residence.
Taxes, association fees, garbage collection, lawn care- all the expenses you pay in your primary home will most likely apply to your New Braunfels vacation home. Owning a second home is just that: owning, maintaining, and paying for 2 homes. Additionally, keep in mind that it is not just financial expenses that will come into play. Time budgeting will also be necessary when caring for your vacation home. Time spent opening and closing it down for the season, time performing maintenance, and time taking care of unforeseen issues. Of course the payoff is relaxing and enjoying the view of one of New Braunfels’ gorgeous river views, but, make sure you are being realistic about the additional time and work involved.
Owning a New Braunfels vacation home can be an exciting decision, but only if you are certain about how it will change your life and finances. Before you take the plunge, look at your overall financial picture. How will you finance a vacation home purchase? And can you really afford it? Take the time to examine your finances and your options to reduce the chances of unpleasant surprises down the road.