Demand for second homes has ramped up in the last couple of years as affluent Americans fled dense cities for more elbow room and a better view.
“The demand for second — or third — homes is out of this world,” said Bill Hernandez, a real estate broker of luxury homes in South Florida for Douglas Elliman.
Seventy percent of respondents in a 2021 national survey said they were interested in a second home or already owned one, up from about 60 percent the year before, according to RCLCO, a real estate advisory firm that conducted the survey.
Federal Reserve increased its key interest rate by a quarter of a percentage point, and the Federal Housing Finance Agency has said it will raise upfront fees on second homes.
Second homes are typically used only a few months out of the year, so it’s crucial for buyers to consider the costs before signing a contract, real estate experts say. Some states, like Florida, have a waiting period after a contract is signed, giving buyers additional time to do their due diligence, but it’s important to research the market before starting the hunt for a home.
Here are four tips to help navigate the costs of buying a second home.
LOCK IN A MORTGAGE RATE
Mortgage rates fluctuate daily, but they are on the rise. The Federal Reserve has projected six more rate increases this year, making borrowing more expensive for banks, which then pass on the higher costs to customers. Mortgage rates are also affected by inflation, which is at a 40-year high. To protect yourself from higher mortgage rates later, set your rate as early as possible.
Buyers relying on financing should line up their loan approval well before making an offer on a home, Mr. Hernandez said. “A home buyer in the market today can get a 90-day rate lock,” he said.
30-year fixed-rate mortgage was 4.16 percent on March 17, up from 3.09 percent a year ago, according to Freddie Mac, the mortgage finance giant. Want to know the rate you might get? The Consumer Financial Protection Bureau has a handy online tool to help potential home buyers determine what mortgage rate they can expect in every state.
NEGOTIATE CLOSING COSTS
Mortgages typically come with upfront costs, including appraisal fees and pro rata property taxes. Most are standard, but buyers looking to reduce their closing costs can negotiate some fees with lenders on third-party services, like pest inspections.
One upfront cost is about to jump: The Federal Housing Finance Agency said in January that, in an effort to support affordable housing, it would increase the upfront fees next month for mortgages on a second home sold to Fannie Mae and Freddie Mac by as much as 3.9 percent.
Under the plan, a buyer with a $300,000 mortgage and loan-to-value ratio of 65 percent, for example, will pay an additional $4,875, according to the National Association of Home Builders, which has opposed the plan, saying it will increase the cost of homeownership.