Buy A Vacation Home

Buying a Vacation Home

At some point or another, many people dream of escaping their day-to-day routines and “getting away from it all”—a vacation home can make that dream a reality. Whether it be a beachside villa, a wooded retreat or an urban loft, purchasing a secondary residence as a vacation home can be an extremely rewarding investment and provide:

  • Tax benefits: Having a secondary residence such as a vacation home can afford you tax benefits.
  • Rental property: When you’re not using your vacation home, you can generate income by renting out the property.
  • Resale value: If the home’s value increases with time, you can sell it for a profit in the future.

Vacation Home Mortgage Options

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Loan Terms and Types

The same standards used for primary home mortgages apply to secondary home mortgages and include 15 to 30-year terms as well as fixed and adjustable interest rates.

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Home Equity Line Of Credit

Some borrowers will utilize the equity on their primary home in the form of a HELOC or HEL to fund the down payment on their vacation home mortgage. HELOCs generally have variable interest rates while HELs have fixed-rate terms.

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Cash-Out Refinance

With this method, homeowners refinance their primary home and put the extra cash received towards a down payment on their vacation home.

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Joint Mortgage

Many people plan on sharing their vacation home with family and friends and it’s not uncommon for these groups to share in financing the home as well. Buyers should note that co-buyers’ credit, income and debts are all assessed when applying for a joint mortgage.

Vacation Home Mortgage Qualifications

  • Lenders utilize many of the same metrics when underwriting a mortgage on a second home as they do for a first home. However, in general, requirements for mortgage eligibility on a secondary residence are more strict and different guidelines and regulations apply:
  • Loan-to-value ratio (LTV): Loan-to-value ratio is equal to the current balance of your mortgage divided by the current market value of your home. This can affect your eligibility and loan terms.
  • Down payment: While primary residences require a down payment as low as 5%, secondary homes generally require at least 10% and up to 20–30% if your credit is less-than-ideal.
  • Credit score: The minimum FICO score requirement for a secondary home can be anywhere from 640 to 700 while for a primary home itmay be 620 or lower.
  • Documentation: Proof of annual income and documentation of assets may be required for a vacation home mortgage.

From 15 to 30-year terms and fixed and adjustable-rate mortgages, the number financing options available to vacation homebuyers can be overwhelming. A Global Equity Finance loan officer can help you narrow down your selection and ultimately choose the best way to finance the vacation home of your dreams.

 

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