4 Things To Do While Buying Your Second Home

  Author: Sanjay Sharma

This is something that typically happens in very many cases. As you are about pay off the home loan for your first home, you started getting interested in buying a bigger and better second home. If you have been investing for your other major needs like child’s higher education, it is not a bad idea to buy a second home whether you intend to stay there or you just want to do it as an investment. This is because real estate, as an asset class, has the potential to provide high returns over the long term, i.e. 8-10 year or more. But as you embark on the process of buying your second home, you need to keep in mind four important things.

Be very clear about the reason for buying You are aware that buying a home is a big financial ask. You need to be very clear as to why you are undertaking this major task. Ask yourself whether you will be staying there? Do you want rental income? Or, do you want to have it as an investment? It is important to answer these questions as that will, to a large extent, influence your purchasing decision.

For instance, if you intend to stay in your second home, you will need to figure out how much rent your previous property will fetch. The rent of the new property needs to be considered if you are planning to give it out on rent, as in you will have to service an EMI in both the cases. If you are buying the second home for investment purposes, you would need to have some idea of the direction of property prices in the future.

Close your first home loan By now, you are most likely to be well aware that home loan EMIs are long term commitments. While it may be tempting to go for a second home loan even while you are paying off your first loan, it is best avoided. That is because simultaneously paying two EMIs can strain your finances. Once you have cleared off one home loan, you might feel that you are in a position to take another loan and that is when buying a second property makes sense.

Ensure home loan tenure ends well before retirement Remember that you will be paying the EMIs from your current income. For this reason, it is essential that you close your home loan before retirement. After paying off the first loan, if the second loan will continue till retirement or further, you will need to dip into retirement savings to pay off your EMI. So, your decision to buy a second home will depend on when you have cleared off the home loan for the first home besides the tenure of the new home loan.

 Ensure other future needs are not compromised Even if the second home is for investment purposes remember that you can't ignore other important needs like child’s higher education and marriage. You need to invest for those needs too. If your existing investment plans will take a complete backseat if you are taking a loan to buy your second home, it is not a wise decision to go for one.

If you are thinking of buying a second home, you need to remember that you have already fulfilled your basic need of a first home. Now, you need to plan well and act prudently to ensure you get the most of your second home.

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