In general, financial experts suggest setting aside 1% of the total cost of the vacation home for a down payment. To qualify for a conventional loan, you'll need to have a good credit rating of 725 or even 750, depending on the lender. Your debt-to-income ratio should be strong, especially if you're aiming to limit your down payment to 20%. All borrowers must provide full documentation of their income and assets to get a second home loan, as lenders will need to see that you have enough cash reserves to cover two-home payments.
Unless you plan to manage the vacation home yourself, it's best to hire a property management service. That's why it's essential to calculate the numbers carefully and estimate the cost of owning a vacation home before investing in a property. If you're using someone else's vacation home, make sure it's spotless when you leave and consider fixing something while you're there. Once you've decided why you should buy a vacation home, the next step is to reduce the cost and determine if you can afford it.
The summer holiday season brings joy to many people, but for some, the yearning for a second home all year round brings a touch of melancholy. Lenders usually require that a second home be at least 50 miles away from your primary residence, while an investment property is less than 50 miles away since you're not likely to vacation in a home that close to where you live full time. Offsetting the costs of owning a vacation home through rental income is an excellent way to stretch your money further and increase your borrowing capacity. If you have equity built up in your primary residence, you may also be able to borrow against its value to maximize the borrowing power of your vacation home.
To get a loan for buying a vacation home, be prepared to pay more upfront and show that you have a higher credit score and better debt-to-income ratio than what is needed when applying for a mortgage for a primary residence. My wife and I are talking about having children soon and I love the idea of taking them to the vacation home several times a year and eventually passing it on. It's wise not to spend more than 10% - 20% of your net worth buying a vacation property so as not to see it as an undue burden. My family and I are looking for an oceanfront spot in Fernandina Beach, FL as our vacation home.
As with buying a personal residence, vacation home buyers can check websites such as Zillow, RedFin, Realtor, and MLS to research different markets and compare prices. Buying a vacation home comes with rewards and risks, including the possibility that if you plan to rent it out for income, you won't earn enough to offset your expenses.