Home Sweet Home second

Warm, sandy beaches, the sound of a rolling surf, sun sparkling like diamonds on the waves, the catch of the day on the menu for supper.

Snowy slopes, whitewater rafting, trout-filled streams, wind whispering in the pines above a well-worn trail, a picnic at the edge of a tree-lined lake.

Endless stretches of rolling green fairways with challenging dog legs, a drink with friends at the 19th hole, a gated community with tennis and swimming.

If you find yourself visiting these places in your dreams or vacations, maybe it’s time to think about a second home. Even in a volatile real estate market, second home sales are up – thanks in no small part to friendly financing. It’s not as hard to get as you think, and the terms can be as good or better than those for a primary residence. 

FINDING A SECOND HOME
You’ve already taken the first step. Knowing where you want to be is also the biggest step, according to Gib Gibson, a real estate agent with Keller Williams Realty in the Hendersonville, N.C. area. The next step is to enlist help in your search.

1. Do you see yourself in a house, condo or even a boat?
2. How do you feel about buying land and building now or later?
3. Have you made a decision about whether this will be a second home, investment property or hybrid?

"Visit an onsite agent or hire a real estate agent in the area you’d like to search," Gibson advises. "A buyer’s agent costs you nothing, and an agent who is familiar with the market is your best bet when it comes to finding what you’re looking for, determining a fair price and even finding financing. And, it’s never too early to start. It may take some time to find what you’re looking for – especially if you don’t know exactly what that is."

North Carolina real estate agents and lenders are seeing a growing number of clients from South Carolina, California, Washington and mostly Florida, according to Cameron Chapman, branch manager of Fidelity & Trust in Raleigh. Snowbirds disenchanted with the lack of seasons and slow appreciation of their retirement homes are flying halfway back to the New England states and settling in the Carolina mountains where they are known as "half backs."

The Asheville area is a prime market for retirement and vacation homes, even rentals, Gibson says. "Everyone wants to live here. As a result, appreciation on homes here has been about 7 percent a year. Our bubble is just not going to burst until we run out of beautiful mountain views and wonderful weather."
Most clients need only a few months to find what they were looking for, but some take more than two years, Gibson says. "A lot of times, the ideal property is just not on the market yet. You have to wait until it shows up."

That was the case with Monica and Warren Kent* of Charleston, S.C. They knew what they wanted, but it still took them eight years to find it. They are also half backs. "Being ex-Yankees… we wanted to go back to a place with real seasons, but not the severe seasons we grew up with," Monica says. "We’ve lived in places where we’ve had too much winter and too much summer. The mountains of North Carolina have four seasons, but winter isn’t harsh and neither is the summer."
The couple visited the area several times a year, falling in love with the area a bit more each time. Still, the search did not go well.

"We knew we wanted to find land to build on later," Monica recalls. "We were both 50 and had some time before retirement. We were looking for a couple of acres with great mountain views. We didn’t want a gated community or a golf course, but we didn’t want a trailer either.

One of the tools Gibson employed to help the Kents was his own website where they could identify properties that interested them. Gibson found a similar property in an expired listing and convinced the owner to sell. The Kents paid for the three-acre parcel and improvements to the land last year, then found a local contractor and broke ground in October. They expect the Fairview home to be completed in the spring, and plan to make it their primary residence within the next two years.

A 2ND HOME THAT PAYS FOR ITSELF

Austin Lybrand, a former attorney who lives near Pittsboro, had a big dream, to provide his family with a beachfront home similar to the one his grandparents rented – but never owned – when he was a boy. With college educations and his own retirement to fund, he turned his dream into reality by making the most of his time and talents and using a combination of financing and other people’s money.

"Going to the beach with my extended family was one of the sweetest parts of my childhood," Lybrand says. "I wanted that tradition to continue." He had been bringing his children to Emerald Isle for many years and decided to look there.

Given the cost of oceanfront lots on the Carolina coast, Lybrand knew from the beginning that his house would be a hybrid – part investment property, part second home. "I wanted to be able to use it myself as permitted under the tax law, and I knew I had to rent it out to make it work financially," he says. "The only way to justify the house to myself was that it would pay for itself after a large investment, downpayment was made."

Initially, Lybrand looked at resale homes. "I found that many of the resale homes had not been well maintained over time. So I used that search process to determine what a house needed in terms of furnishings, kitchenware, even how the rooms were arranged. Then, I started looking for lots."
He found one owned by a builder, who agreed to sell it with the condition that Lybrand build with his company. Lybrand purchased the lot and invested heavily in improvements, including some 60 truckloads of sand to raise the level of the lot. He then took out a loan only for the house – a 5,500-square-foot duplex – and its furnishings. This left his mortgage payments half of what they would have been had he financed the entire cost. If his home rents 10 to 12 weeks during high season, the rental income covers his annual mortgage payments.

There are also costs to figure into the bottom line – management fees, maintenance, repairs, replacement of appliances and furniture. Because Lybrand lives three and a half hours away, he pays a management company 15 percent of the rental income it brings in, and he pays a cleaning crew to come in after every rental week. In addition to the appliances, furniture, etc. that have to be capitalized and depreciated, repairs cost $1,600 per unit last year. That figure is low because Lybrand is able to do much of the work himself or with the help of friends, and estimates that paying someone else to do what he does would cost an additional $5,000 a year.

FINDING A SECOND MORTGAGE

Often buyers know at the outset that it makes financial sense for renters to help cover the mortgage or they will make a larger downpayment so the monthly mortgage is manageable without rental income, Chapman says. You have to do the math and figure out what works best for you.

"Then, sit down and make 10 phone calls," Gibson says. There are a multitude of loans for properties to be purchased as second homes, investments (income-producing) or hybrids, but the terms can vary significantly depending on the borrower and how he intends to use the property. Those phone calls should include mortgage brokers as well as banks.

 
"If a borrower’s credit and debt ratio are in line, a second home will be treated just like the purchase of a primary residence," says Vicky Weeks, a loan officer for Meridian Mortgage in Asheville. "The loan-to-value may not be as high, but we can do stated (no proof of income) and sometimes 100 percent financing. Every individual’s circumstances are different."

Credit scores range from 300 to 850 with most people in the 600s, Weeks says. All lenders charge higher rates on loans to borrowers they consider to be a greater risk than others. Likewise, they charge higher rates on properties that will be rented than those that will be treated as second homes or hybrids (rented no more than two weeks each year), Weeks says. "The higher the risk, the higher the interest rate and the higher the loan to value."

Even given those terms, not every lender will finance every property, Weeks says. A prime lender finances borrowers with credit scores of roughly 700 and above, with three to six months of cash in reserve, verifiable assets and usually a 20 percent downpayment. "A subprime lender is going to be more lenient," Weeks says. They are looking for scores in the 500-600 range and are willing to finance someone who has a less-than-spotless credit history.

Mortgage brokers, with access to hundreds of programs from lenders, "can help people that banks won’t look at," Weeks says, "and we’re motivated. If you go to a bank, you’re dealing with someone who’s going to collect a paycheck regardless of whether you get your loan. We can’t collect until we close. We want to find you a loan at terms you can live with."

Jane Shealy is a Freelance Writer