If you have a lower credit score or a higher debt-to-income ratio, your mortgage lender may require at least a 20% advance for a second home. A down payment of 25% or more can make it easier to qualify for a conventional loan. If you don't have a lot of cash on hand, you may be able to borrow your down payment. Since FHA loans aren't an option for anything except for principal residences in the United States, you'll need conventional financing or a portfolio loan from a private lender. Either way, lenders generally require a 20% to 25% down payment on a second home to make it less risky for them.
If you use the property as an investment property, you may be required to pay an even larger down payment. Increasing Number of Second-Time Homebuyers Buy Homes with a Lump Sum of Cash. However, if you choose the mortgage route, the required down payment may be higher than what you paid the first time. In some cases, second mortgage down payments may be as low as the normal 20%, but others (especially jumbo loans) may require down payments of 30% or more. Lenders may require a down payment of 15% to 20% for the purchase of investment property in a single-family home.
If you're buying a two- to four-unit multifamily investment home, you'll need to save up to 25% for the down payment. While lenders may be liberal in some way when financing a primary residence, vacation homes are different. The vacation home can also be used as an investment property if you plan to rent it out when it is not occupied to help cover the monthly mortgage payment. According to the Insurance Information Institute, if you plan to use your vacation home exclusively for yourself, insuring it can be as simple as extending the policy you already have at your primary residence. If you don't work remotely, a vacation home could be high on your bucket list if you have a favorite getaway spot that you visit frequently. Be sure to check vacation home mortgage requirements with different lenders, as the financial stress created by the pandemic has caused many lenders to tighten their approval requirements. Vacation home sales skyrocketed at the start of the pandemic, and now that many Americans can work remotely, their appeal may be even stronger for some.
Expect to put at least 10% on a vacation home (compared to a 5% minimum, or even no down payment, for a primary residence). You could make several hundred dollars a night, enough to put a dent in your monthly vacation home mortgage payment. A second home can act both as a holiday home and as an investment, as landlords can easily rent it out when they are not staying there. Vacation home mortgage rates tend to be higher than financing for a primary residence, about an additional 0.5 percent to 1 percent. If you are considering buying a vacation home, think about how you will use it, how often, and whether or not you will rent it. Unlike a hotel or a timeshare, a vacation home is yours permanently, to use whenever and however you want.
Consider these pros and cons with your family to help you decide if buying a vacation home is right for you. Since owning a vacation home means you won't be there all the time, you may need to hire someone to look after it during your absences or when you're in between guests, if you rent it. Buying real estate in a new area or even one where you've been vacationing for many years requires expert guidance, so make sure you work with an experienced local real estate professional.