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Demand called on the rise for 2nd, or vacation, home


Planning a summer vacation often spawns thoughts of owning a second or vacation home -- which could be a good and timely investment.

Financing is readily available for purchasing a second home. Mortgage interest payments and property taxes are still deductible on income tax returns. But that may change if proposed legislation is passed.

"The demand for second homes is now picking up after this market niche virtually dried up for a three-year period," said Bob Krakover, broker-owner of a brokerage firm that specializes in the sale of beachfront second homes.

If mortgage financing is for a second home, the required down payment might be a bit more than 10 percent, but the interest rate for qualified borrowers will probably be the same as that for loans set up for a primary residence. In some areas, it will be higher.

Lenders normally require borrowers to qualify for the combined mortgages of the primary and second homes. Typically, the borrower's total housing expenditures may not exceed 28 percent of income. And total financial obligations must be 36 percent of income or less. Requirements vary from lender to lender.

Second-home mortgage interest is deductible if the combined total of the mortgages does not exceed $1.1 million. There's no cap on deductions of real estate taxes.

Proposed legislation would cut that maximum combined mortgage amount down to $250,000. State and national Realtor associations are fighting that proposal. If enacted, it could remove a key incentive for buying a second home.

A negative factor in owning a second home is related to capital gain or profit on the sale of the property. The capital gain is immediately taxable. It may not be deferred, as may be done with the profit from the sale of a primary residence.

Also, insurance for a second home is usually more expensive than a policy covering a primary residence. Some insurance companies offer an "umbrella coverage" for several homes and cars, with a discounted premium.

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