How To Secure a Vacation Home Loan

Being able to escape to your very own vacation home whenever you want is a dream for most of us. So how do you make it a reality? A little hard work and financing for a vacation home can make your dream a reality. One option for financing a vacation home is a vacation home loan. Vacation home loans can be secured through FHA approved lenders. Another option for vacation home financing can be a personal loan. Personal loans can be easier to qualify for but can have higher interest rates and lower loan amounts. Keep reading to learn the ins and outs of vacation home financing.

What are vacation home loans?

As you can assume from their name, vacation home loans can be used to finance vacation homes. Compared to traditional primary residence home loans, vacation home loans can have slightly higher interest rates. Compared to rental home loans, vacation home loans can have lower interest rates and are less complex. If you can afford a vacation or second home without rental income you should look into a vacation home loan.  Before singing into a vacation home loan it’s important to shop and compare offers, rates, and terms. 

Is it hard to get a loan for a vacation home?

Qualifying for a vacation home loan can be more difficult than qualifying for a primary residence mortgage. Most lenders require you to have a high credit score, solid income, reserves, down payment, and more. While you may be able to qualify for a traditional home loan with as little as 3% down you will most likely need much more to qualify for a vacation home loan. You should have at least 10% down before applying for a vacation home loan. You should also review your assets, credit, and income before applying for a vacation home loan. During the approval process an underwriter should review the same things. Reviewing ahead of time can increase your chance of approval and save time for you and the underwriter. Lenders may require that you have reserves, This means that in the event that your income is interrupted, you should have sufficient funds to keep up with mortgage payments. 

Can you finance a vacation home?

Yes, you can finance a vacation home. In most cases you will need 10% to 20% down and excellent credit. If you cannot qualify for a vacation home loan you should look into a  personal loan. Most lenders offer personal loans up to $100,000 and the funds can be used however you would like. If you qualify for a personal loan and the loan amount is high enough to purchase your vacation home this could be a good alternative. Most personal loans are offered with terms up to 12 years and interest rates starting at 4.99%.

How much down payment is needed for a vacation home?

Most lenders require a 10% to 20% down payment to qualify for a vacation home loan. In most cases you will also need proof of financial reserve. This ensures the lender that you should be able to make payments even if your income is interrupted.

Can I buy a vacation home with no money down?

It’s highly unlikely that you can qualify for a vacation home loan with no money down. Even if you have superior credit and lots of assets you will most likely still need a down payment.

Is a vacation home considered investment property?

A vacation home can be considered an investment property if you are not living in it on a semi-regular basis. As long as you are purchasing it for personal vacation use it should be considered a vacation or investment property, not a rental. Rental properties are homes that you purchase with the intention to rent and generate income from. The projected revenue to be generated is taken into account during the loan approval process. For this reason, rental property loans can be easier to qualify for than vacation home loans. Whether you purchase a vacation home and rental home they can both be great investments. 

Is it smart to buy a vacation home?

Buying a vacation home can be a very smart decision. It allows you to create a getaway space that is truly yours. You can eliminate resort fees and travel restrictions by owning your own vacation home. In addition, it’s a much smarter investment compared to renting a hotel room. If you want you can even rent your vacation home as an AirBNB. You can choose to only rent the home on holiday weekends or select times to help cover some of the expenses. Renting your vacation home just a few times a month may cover more of the monthly expenses than you think. 

Closing Thoughts

In conclusion, the best way to finance a vacation home is using a vacation home loan. Although they can be more difficult to qualify for than a primary mortgage, they offer competitive rates and high loan amounts. If you cannot qualify now you may be able to make some adjustments and qualify down the road. You should consult a professional for financial advice on how to qualify. A vacation home is a rewarding investment that can provide your family with unforgettable memories.


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