Should You Buy a Second Toaster?

Every time I take a break from real estate and head to the island of Kauai and Poipu Beach, I end up thinking about buying a second home at the end of the road of Paradise, or at least one of those almost historic ranch homes in the little town of Waimea. That, however, would require me to buy a second toaster, vacuum cleaner, dishes, sofa, pillows, TV, et cetera. Nevertheless, it’s tempting to the point of checking out financing for second homes. VA and FHA do not finance second homes, so Fannie Mae is the lender of choice unless you are paying cash. In order to qualify for a second home, it must be occupied by the borrower for some portion of the year. Financing is restricted to one-unit dwellings and must be suitable for year-round occupancy. The borrower must have exclusive control over the property. And, perhaps most importantly, it must not be a rental property or a timeshare arrangement. It also cannot be subject to any agreements that give a management firm control over the occupancy of the property. If there is rental income from the property, it cannot be used for qualifying purposes.

Despite the incredibly low interest rates at 3.65% for a thirty-year fixed mortgage, most aging baby boomers end up paying cash or mostly cash for a second home. The idea of a second home in a warm climate is attractive to Alaskans, and when I am hosting open houses, I frequently hear that conversation between spouses/partners as what to do when retirement comes their way. To stay or leave? To downsize and sell their current residence and buy a condo or a smaller home? To take their hard-earned equity and buy that second home in Arizona with the plan to make it their primary residence at some future point in time? One reason people stay or leave is to be near their adult children and grandchildren. As people age, family becomes more important. Perhaps, even more so than a state’s favorable tax structure or low mill rate for property taxes. Like all decisions regarding home purchases, after you get over the financial requirements of home ownership, it really all boils down to personal lifestyle choices that almost always are related to a change in marriage, birth, death, divorce, or job change.

Second home choices aren’t just limited to Hawaii or Arizona, however. Many locals enjoy the benefits of having a second home at Big Lake, Alyeska, Halibut Cove, the Kenai, or a remote cabin accessible only by snow machine or four wheeler. Some of those remote choices are neither financeable nor insurable. Many Alaskans have lost their cabins due to the interior or Kenai fires in recent years of which many were not insured. Also, some insurance policies are only good if you elect to rebuild.

As for me, I’m content to rent my fun in the sun. The toaster will have to wait.