Tips for Buying a Second Home

Before shopping for your second home, consider how you'll pay for it so that it doesn't become a burden. Using a home equity loan is often the smartest path, because you can use otherwise untapped value in your home to your advantage without raiding assets such as bank accounts, stocks, or other savings.

Here are four ideas to help guide your decision:

1. Leverage equity

If you've accumulated equity in your home, don't just sit on it. Put it to work by borrowing against it while home equity loan rates are still attractively priced. You can also use a home equity line of credit (HELOC). Banks typically charge more interest for those loans, but you avoid many closing costs and still may be eligible for tax deductions of interest and other expenses.

2. Buy property conveniently located

Buy a second home that you'll definitely use, not one so far away that you'll never visit it. Location becomes especially important if you use the property as a rental for extra income, because it will be easier to check on tenants and perform routine maintenance.

3. Consider a fixer-upper

Rather than buying someone else's idea of a dream vacation home, consider creating your own. A less-than-perfect property can quickly pay for itself if you use home improvement loans to update it, and you'll have the satisfaction of remodeling or upgrading your second home to suit yourself.

4. Mix business with pleasure

Many investors combine their use of a second home as a vacation getaway with an occasional lease or rental. Not only will you make money by leasing, you'll save money by not paying for lodging at vacation time.

If you act now, while the buyer's market is still hot and overextended sellers are desperate, you can possibly acquire an undervalued second home at a discounted price. By using a home equity loan to finance it, you'll leverage your money in two ways. The existing value in your primary home can help acquire a long-term investment with built-in profit (and holiday pleasure) potential.