When it comes to buying a vacation home, it's important to understand the credit score requirements and other factors that come into play. Generally, you'll need a credit score of at least 640 to qualify for a loan on a vacation property, as there are no FHA loans available. Additionally, you'll need to make a down payment of at least 10 percent, as opposed to the 3 percent required for a primary residence. A higher credit score of 700 or more is recommended, as this will help you qualify for a second home.
It's important to note that the government does not sponsor vacation home loans, as these are intended to promote primary homeownership. Before making the decision to buy a vacation home, consider the pros and cons with your family and make sure you are prepared for the responsibility that comes with it. If you plan to purchase your vacation property in an area that is far from your primary residence, be sure to budget for travel costs in advance. When it comes to financing your vacation home purchase, a home equity line of credit (HELOC) in a primary residence is often the preferred option according to the NAR Annual Vacation Homebuyer Survey.
Buying a vacation home can be a great way to build up equity and capital through your mortgage payments. However, if you plan to rent out your property, you'll need to report any rental income to the IRS if renters stay for more than 15 days per year. Ultimately, decide if you prefer the flexibility of choosing from a variety of destinations for an annual vacation or the reliability of having a vacation home you can always go to.