Acquiring a vacation property, or even a second home in general, is the dream of many Americans and just about every homeowner in the country. Obtaining the financing for a vacation property can be difficult for many, but there are several different ways to achieve that goal. Here are some of the things you need to know if you are planning on purchasing a vacation property through financing.
Vacation properties have accounted for 10 percent of new home sales within the last year, so there are still plenty of people that are finding success in receiving the financing for these properties. Some are dissuaded from the process due to the likelihood of higher down payments and interest, but there are other avenues to discover.
Consider the area
While some vacation properties can cost an exorbitant amount, there are others that have become more affordable. For instance, the Jersey Shore vacation properties have become more attainable with down payments trending downwards to about 20 percent if you have the right debt-to-income ratio and credit score. So make sure to choose the best location and find what fits your means.
FHA Loan on current home
Many people that already own their home are taking out a mortgage through a government loan program from the Federal Housing Administration (FHA) to make the payments on a vacation home. Since these loans cannot be used on a second home, the mortgage will go against the home you currently own.
Homeowners like to take advantage of this as the down payment is just 3.5 percent and interest rates are much lower than standard rates. You also don’t need an amazing credit score as loans are approved for those with credit scores as low as 580. It is an enticing offer and if you don’t have all of the money for a vacation home right away, this could be your ticket to reaching your goal.
Home equity loan
Many have seen the equity on their homes drop, but if your current home has maintained equity, then this will be one of the ideal roads to take. Unfortunately, these types of loans are sparingly approved as lenders do not want to zap the equity from the principal property through these types of loans. It would be best to consult with a lender about this option to see how fruitful it may be.
While the FHA loan only requires a 3.5 percent down payment, conventional loans can require a down payment of anywhere from 20 to 35 percent total, which makes this the best option only if you are not eligible to use the FHA loan.
The interest may be higher as well, but if this is the last option and you are in search of a vacation property, then that won’t be much of a problem if you have the means. Your debt-to-income ratio will need to be impressive, as well as your credit score. The typical range for credit scores that are approved for these types of conventional loans falls between 720 and 750.
If you plan on renting out your vacation property while you are not using it, then that income won’t count in consideration of the mortgage, but it is a great way to make the payments if you still qualify.
With that said, the typical loan can be hard to achieve, but the FHA program (if you qualify) is a great way to go. Explore all of your options and consult with lenders and finance experts to truly find what works best for you.
Guest Author Bio
Simon Campbell has spent over 15 years in all the various facets of real estate including sales, purchases, investment and research. His experience also includes commercial and residential property management, and even real estate appraisal. He is recognized among his peers as an expert in the real estate field. Now after gaining such a wealth of personal experience, Simon has changed directions and is sharing his knowledge and experience with others through writing, mentoring and consultation. Check out Simon’s profile on Google+ and also his blog.