Vacation properties are the talk of the town these days. We find LGBT couples want to escape winter on a warm beach or in the hot desert of Palm Springs and others love snow and want to share the mountains with friends. Whatever your taste may be, you must make sure you are set up financially for vacation/second home financing before you even start looking.
You’ll need a bigger down payment
On your primary residence you may have made a down payment of 3 to 20%, but for a vacation home you will need to set aside at least 20%. If you don’t have the cash, the lender may allow you to use a home equity loan against your primary residence. This is a good solution if you have the equity & you’re secure in knowing you can handle both mortgages.
Qualifying can be more difficult
Vacation property loans are riskier for mortgage lenders compared to primary home mortgages. Make sure you shop aggressively for a good mortgage rate.
Assets – Don’t spend too much of your cash on your new place. The lender will require well qualified applicants to have at least 2-6 months of reserves.
Credit – Your credit score has to be high (700+) if you want to secure second home financing.
Income – DTI Debt-to-income are almost the same as compared to that for primary homes. Vacation property may not have any rental income to assist with the mortgage payment. This means that you will have to qualify with your own income. If you are interested in purchasing a multi-unit vacation home, then it will be considered as an investment property, whether you are planning or not to rent it out.
You can buy with friends or family
It is very usual for friends and families to come together and buy vacation properties. It makes it easier to raise a down payment and qualify for a mortgage. Costs will be lowered in terms of utilities, repairs and maintenance since you will be sharing with others. It will also makes easier to look for experts that offers services like roof replacement, plumbing, etc.
You need to come up with rules that will govern your house, find out all the expenses (both monthly and capital improvements; roof, paint, furnace, etc.) that will be needed and have a budget and third party management to ease any potential problems.
Shop carefully
Don’t let the dreamy atmosphere of your vacation destination ruin your decision making skills. Never impulse buy a second/vacation home or timeshare… no matter what is said, the property will still be there, and if not ~ it was not meant to be.
Author Jeff Hammerberg is a gay realtor and Founding CEO of GayRealEstate.com ~ Offering Free Instant Access to Palm Springs Gay Realtors and the Nation’s Top Gay, Lesbian and Gay Friendly Realtors Coast to Coast. Free Buyers Representation ~ Free Relocation Kit to any City, USA ~ Free Sellers Market Analysis for home sellers.