­

Lenders will gladly finance 100 percent of a second home purchase provided you qualify for the no-down loans, but buyers are not selling the farm to make the purchase.

Too much mortgage can cost second home buyers important tax benefits of home ownership.

"Many lenders will finance a second home just like an owner-occupied home, with the same rates, qualifying requirements. Even 100 percent financing is available for second homes," says Brandon Knapp.

Lawson & Associates Mortgage Planners in Campbell, CA.

However, nearly half, 45 percent of all second home buyers tap their savings as the down payment source and on average, finance more than 80 percent of the purchase according to the "2005 National Association of Realtors Profile of Second-Home Buyers".

The survey, which also found that 36 percent of all home purchased in 2004 were second homes purchases, found 29 percent of buyers moved equity over from existing homes, nine percent used a loan, five percent used inheritance, five percent used the sale of securities, three percent used individual retirement accounts, three percent used pension funds or 401(k) proceeds, and the rest used loans or gifts from friends or relatives, and other sources.

Most buyers appear to be making other wise financial decisions when they acquire a second home.

"The mortgage interest is tax deductible on up to $1.1 million in total loans on two homes. If you buy in a place that will be your future retirement property, you receive the tax benefits now in your peak earning years and you establish a lower basis which keeps your property taxes lower," he added.

NAR also said second home buyers are less likely than primary-home owners, to finance their second home purchase with a mortgage. In 2004, 83 percent of second home buyers financed their home with a mortgage compared with 92 percent of all recent home buyers.

"This difference reflects, in part, the higher income of second-home buyers who may have more substantial financial resources or who have extracted equity from their home, either through a recent sale or by borrowing against the value of their home, all of which limit the need for mortgage financing," NAR reported.

Second-home buyers on average, finance only 78 percent of the purchase with just about one third of them financing less than 70 percent, and 56 of them financing 80 percent or less. Only 11 percent financed 100 percent of their second home purchase, NAR said.

Knapp cautioned those in high cost areas to watch the bottom line when considering how much to finance.

"For many people in the San Francisco Bay Area (and other high cost areas) who buy a second home, they will exceed the total cap on interest and property tax deductions," Knapp said.

"Buying a second home is a hit to your budget if you can't produce income off the property. You can rent it in the future, if money is tight. Buying a second home could also affect your ability to qualify for the purchase of other property if your debt-to-income ratios are outside the lender's guidelines," he added.

Log in to comment
­