So you want to buy a second home in this market?

 

Upon making the decision to do what it takes to buy a second home in this volatile foreclosure market you now have many things to consider.  It can be done, and the financial benefits are proven to be there.  You have many options, 3 come to my mind as the most common paths to follow.  The trick is to find the method to fit your individual madness.  First is to take the loss happily and move on up, the second to become a landlord, and the third is to short-sale your current home the move up soon as possible, 18 months to 3 years depending on your personal credit profile.

 

Taking the loss happily may seem ludicrous on its surface, but this may make the most sense in the end.  It is all about the dollars and cents take the emotions out of the equation.  It does not matter if the bank deserves it or how you feel swindled.   Every penny you loss on your current home sale is potential dollars in the years to come on your newer home.  Not to mention that you can now afford a bigger, newer, more convenient location, or just plain better home.  Let us imagine you’re purchased a home in 2003 just under 170k in West Lancaster, CA.  In the current market you are likely to see a loss of 50k but in the same area 170k will buy a home with 3X the square footage, built within the last 5 years.   Now you are free to buy a dream home with your great credit in tacked and can take advantage of low down payment-move up FHA programs do exist- and closing cost credits to keep your investment and the second home low. Over the next years your equity in the new home will exceed 50k by leaps and bounds, and you will have enjoyed living in your new home as well.

 

Your next option is to rent your current home and live in your newly purchased home upgrade.  This is a great option for those who have the cash to purchase outright.  In order to finance the second home you will need to have the reserves to cover both payments for up to 12 months and prove this to the bank.  It is possible to have a second FHA loan in many cases, such as where you are moving up.  Lender guild lines will vary so shop around for your loan.   In my recent experience the lender will no longer count your potential rental income, in order to claim rental income you will need a valid rental agreement.  Even if you have a monthly shortfall the potential to build wealth in both homes is there.  You will also have the tax shelter benefits of depreciation and claiming a loss on your rental, consult a trusted tax guru for the details.  When the market recovers you will have 2 sources of equity and will reap the rewards.

 

Last and in this case least, is the prospect of a short-sale.  Short-sale now, then take your time repairing your credit and jump back into the market before complete recovery has occurred.  This is a win, win, win.  When a financial institution agrees to a short sale they are agreeing to forgive the difference between the pay off of your loan and the proceeds from your home’s sale.  Short-sales are not easy, they will try anyone’s patience.  When successful the buyer and seller benefit enormously.  When they are not successful there has been allot of time wasted and the seller’s credit will have taken a dive.  If you are in this situation, odds are your credit is not your biggest worry.