Higher Rates for Vacation Loans
If it was difficult for you to get a loan for your home, you don’t even want to try getting a loan for a vacation home. To you a vacation home is about relaxation, unwinding, having a little fun away from your ordinary every day life. To a lender looking over your application for a vacation home loan, this secondary home is a high risk that could lose money in the long run.
Many people who apply for a secondary loan for a vacation home do not have the income to pay for and upkeep a vacation home. A lot of those mortgages end up in foreclosure and it makes the lenders more careful when considering these types of loans. Due to this extra caution you will have to have even more cash and assets on hand than you would normally be required to have for a primary residence loan. Instead of having a few months rent upfront you will likely need six months or so available immediately. Your insurance and interest rates will also likely be higher for a vacation home loan for a primary residence loan. Basically, to make up for the big risk your lender sees this type of loan as, you will have to proof above and beyond that you can actually afford to purchase and upkeep a vacation home.
Also, be prepared to pay a much larger down payment for your vacation home than you may have paid for the loan on your first home. If you are not buying the vacation home but want to rent, the down payment will more than likely be even higher yet because the lender will be responsible for the condition you may leave the property in.
One option to get around the requirements of having cash on hand and up front, it is possible to take out a home equity loan on your primary residence home to pay for your vacation home purchase. This may take some of the hassle out of applying for a second mortgage loan and jumping through all the hoops to ease a lenders mind about the risk of a vacation home, you must make sure you can really afford both homes because if not then you end up losing both homes in the case of a default on the vacation home.
You never know when you might lose a job, face enormous unplanned medical bills, or find yourself saddled under some other sort of financial struggle. In that case, you would not want your primary home on the line if you can no longer afford to pay for a vacation home as well. Also, the interest rate on a home equity loan will often be higher than that for a secondary home.
If the hassle of securing a vacation home loan doesn’t scare you off, it might be in your best interest to go for a home in one of the states most popular for vacation homes, such as Arizona, Florida, or California. Since these loans are so common in those states the lenders have to compete with other banks for their fair share of the market. That might make it a little easier for you to pass inspection and secure a loan, and it might move faster if you are in a hurry.