The Best Places to Buy a Beach House

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This time of year, it’s natural to dream about owning a beach home. Perhaps you’ve even stared longingly at listings taped to a real estate agent’s windows in your favorite beach town — and then walked away sad.

But if you are willing to try some overlooked, small towns, and travel a bit farther, there are still beach homes around the country that are … if not “affordable” … at least worth thinking about.

The folks at RealtyTrac crunched the numbers to find the best beach “bargains”, and they’ve come up with an intriguing list. It’s not purely about cost: the report also weighed factors like crime rates and days with good air quality. Only cities bordering the ocean with a population of 50,000 or fewer and with an average June-to-August temperature between 60 and 80 degrees were included.

From the resulting list of 1,400 cities, RealtyTrac came up with the top bargain beach town in all 15 states that met the criteria.

“Buying a second home or investment property in a beach town can help families save on summer vacations for years to come and also potentially generate vacation rental income,” said Daren Blomquist, senior vice president at RealtyTrac, in a press release. “While real estate close to the ocean tends to be pricier, bargains are still available, particularly smaller towns off the beaten path where home prices have been slower to bounce back from the housing downturn.”

A few predictable names are on the list, like Palm Beach, Fla. (2016 median price $497,500. So, not exactly affordable) and Bethany Beach, Del. ($467,500. Same deal). But there’s a few surprises. Madison, Connecticut is between New York and Boston, making it not terribly convenient for residents of either city, and that helps keeps the 2016 median price down to $378,000. Crisfield, Md., is the southernmost town in Maryland, making it a tough ride from Washington D.C. — but the 2016 median price there is $50,559.

Of course, if things are really a bargain, there tends to be a reason. RealtyTrac’s top bargain for New Jersey is Keansburg, an oft-overlooked beach that’s even closer to NYC than popular the Sandy Hook area. But Keansburg was hit hard by Hurricane Sandy — as were many beach towns. So buying there comes with its own set of issues. Still, with a 2016 median price of $71,000, it’s another place worth thinking about.

Here’s the full of RealtyTrac’s top 15 beach bargain towns.

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Remember, whether you’re buying a beach house or primary residence, it’s a good idea to check your credit before applying for a mortgage. Good credit scores generally qualify for the best terms and conditions on a home loan, so you’ll want to see where you stand and whether you can do anything to improve your credit — like disputing errors on your credit report — ahead of the home-buying process. (You can view two of your credit scores, updated each month, for free on Credit.com.)

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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Should I Use the Value of My House as My Emergency Fund?

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Q. I don’t have an emergency fund, but I have always felt very secure knowing I have a zero balance, low-interest home equity line of credit that would allow me to get, on an emergency basis, close to three times my annual salary. Is this a legitimate substitute for a separate emergency fund? — Curious

A. A home equity line of credit is one kind of backup plan, but it’s not a foolproof kind of backup plan.

traditional emergency fund covers anywhere from 3 months to a year’s worth of expenses, depending on your personal needs. The money is usually kept in a safe and liquid account.

Chip Wieczorek, a certified financial planner with Tradition Capital Management in Summit, N.J., said it’s not advisable or realistic to keep two or three years of living expenses in a savings account with a near 0% yield.

However, he said, home equity lines have pitfalls.

“I advise clients to maintain three to six months of living expenses in a savings account in addition to establishing a home equity line of credit (HELOC) for large unexpected expenses,” he said.

Wieczorek said when using a line of credit as an emergency fund, you must be aware that lines have a draw period and a principal pay down period.

A typical HELOC has a seven- to 10-year draw period during which the client can access funds and make interest only payments based on a 20- to 30-year amortization schedule. After the draw period expires, funds can no longer be drawn from the line of credit and both principal and interest payments are required.

“You may think you have two to three years of salary accessible from your line of credit but if the draw period expires, your emergency fund has dried up, Wieczorek said. “Most people do not realize this and should review their HELOC terms on an annual basis.”

Also keep in mind that home equity lines are variable and can be frozen by a bank. The interest rate for the line is generally based on an index, such as the prime rate, Wieczorek said.

“This means that the interest rate can increase over time, which would increase your monthly payment as well,” he said.

Also, in 2008, major home equity lenders began informing borrowers that their home equity lines of credit had been frozen or restricted.

“Falling housing prices led to reduced equity for borrowers, which was perceived as an increased risk of foreclosure in the eyes of lenders,” he said. “Courts have held that a bank may freeze a HELOC in instances where a home’s value decreases substantially.”

Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, also referenced 2008 as a problem for many home equity line borrowers.

“It is very possible that the condition that requires you to tap into that credit line — you lost your job or got hurt — may make the bank close the credit line,” he said.

Lynch said a mortgage and a home equity line is not a loan on a home, but instead is a loan on your income.

“If that can be shut down, and that was your plan, you need a better plan,” he said. “Plan A never works. What’s your plan B and C?”

Consider going a more traditional route over time and build the kind of emergency fund you can always count on.

[Editor’s Note: If you plan on opening a home equity line of credit, make sure your credit score is in good shape, as it will be a major factor in determining the interest rate you’ll pay. You can check your credit scores for free on Credit.com.]

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