For a vacation property, for which there are no FHA loans available, estimate that you will need a credit score of at least 640. Down Payment: Typically, you can purchase a primary residence with as little as 3 percent down payment. With a vacation home, you'll need at least 10 percent. A high credit score will help you qualify for a second home.
You'll likely want to get a credit rating of 700 or higher. However, this credit rating requirement varies depending on the lender. Whether you can rent the property or not, your vacation home can help you build up equity and capital through your mortgage payments. If you can qualify for your purchase without the property generating any income, buy it as a vacation home.
The government does not sponsor vacation home loans, as government-backed loans are intended to promote primary homeownership. Consider these pros and cons with your family to help you decide if buying a vacation home is right for you. Potentially, you can still earn income with any of these options, renting your newly built vacation home, RV, boat, or tiny house to others for a weekend or longer. Unlike investment properties, you can't use future rental income to help you qualify for a vacation home.
If you have renters in your vacation home for more than 15 days a year, you'll need to report rent as income to the IRS. If you decide to buy a vacation home, make sure you are prepared for the responsibility that comes with it. First of all, you should consider whether buying a vacation home is a realistic or responsible financial goal in your current position. Still, a second home can be a valuable asset, and if natural real estate appreciation works in your favor, owning a vacation property can certainly help you build up your personal wealth.
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, as you will likely want to visit the home at least once before agreeing to purchase it. Lenders base prices on risk and generally feel that borrowers are more likely to fail to repay a vacation home loan than a mortgage on their primary residence. If you're buying a multi-unit vacation home, lenders will almost always treat your purchase as an investment property, whether you plan to rent it or not. Decide if you prefer the flexibility of choosing from a variety of destinations for an annual vacation rather than the reliability of having a vacation home you can always go to.
According to the NAR Annual Vacation Homebuyer Survey, a home equity line of credit (HELOC) in a primary residence is a favorite source of financing for second-home buyers.