Real estate buyers prepare for a vacation home by assessing the requirements for financing the property. Individuals with an existing mortgage must consider the full impact on their credit and whether they can take on the new loan. A seasonal property offers an extraordinary opportunity to enjoy vacations in their favorite destination, but following a well-defined plan eliminates issues later.
There Are Mortgage Limitations
FHA, USDA, and VA mortgages are off the table, if the owner won’t live in the property full-time. These mortgages are available only when the buyer is purchasing a primary residence. The owner cannot misrepresent their intentions with their lender. Any false claims could lead to serious repercussions. If they want to purchase a property through the HUD program, it must be their primary residence, and the clauses in the mortgage contract state the buyer must live in the property for not less than one year. Conventional mortgages could be the only option for these property buyers.
Down Payments are higher
When purchasing a vacation home, the buyer faces higher-than-average down payment requirements. Lenders may classify the vacation property as a second home, and this increases the down payment to at least 20%. However, a borrower with excellent credit and a debt-to-income that is less than 43% could get a reduced down payment. How the buyer intends to use the property defines whether they consider it an investment property.
Can the Buyer Really Afford a Second Property?
Lenders face serious restrictions for affordability. Newer federal laws require the lenders to complete comprehensive assessments to show the buyer has the means to manage the cost of the property with insurance and their current monthly expenses. Therefore, the mortgage reviews require an evaluation of debt-to-income ratios. Borrowers who want to learn about buying a vacation home get help from Dustin Dimisa right now.
Increasing Insurance Costs
Since a vacation home is vacant a majority of time, the owner will need more than just homeowner’s insurance. They need unoccupied dwelling coverage to protect their investment and prevent serious losses. Installing security systems in the vacation home helps with premium costs and provide additional protection for the property. However, the owner would need to monitor the property closer to reduce break-in risks. Homeowner’s insurance is required, too, and the property owner could add their vacation home coverage in an umbrella policy for extra savings.
Potential Perils that Cause Property Damage
The property location defines what perils are most frequent. For example, properties in desert areas could sustain damage because of earthquakes, and homes near the shoreline are at risk of hurricane damage. Financing the property requires the lender to conduct assessments that define extraordinary risks for the property. Any property in a flood or earthquake zone requires extra coverage related to the persistent peril.
Vacation properties require financing for a second property that isn’t the buyer’s primary home. Lenders may consider the property as an investment instead of just another home, and this could increase the requirements for financing. Buyers learn more about financing a vacation property by discussing their options with a lender now.