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Financing Second Homes and Vacation Properties

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Are you looking to spend part of the year away from the city? How about creating an environment for you and your family to enjoy an annual vacation? Second homes and vacation properties are the solutions to these lifestyle goals. While their primary function is not to generate monthly income like investment properties, they are valuable additions to your real estate portfolio and retirement plan.

As with most real estate purchases, obtaining the proper mortgage financing is one of the obstacles people face when looking to buy a second home. A major component of that challenge is the down payment. Down payment requirements and general lending standards are higher than those for primary residences.

Considering this, let’s get into what you need to know about eligible second homes and information regarding financing options.

Eligible second homes and vacation properties

Second homes need to be occupied by the owner of the property for a certain portion of the year and must be suitable for year-round use. The area in which the property is located should be suitable for vacation homes.

Other requirements:

  • The property cannot be rented full time, or it will lose its distinction as a vacation home.
  • The property itself cannot be more than one unit.
  • Ownership must belong solely to the buyer.
  • The property cannot be a part of a timeshare.
  • The home cannot be managed by a management firm.
  • How do I prepare to buy a second home?

    Unless you can purchase a second home in all cash, your best option will be to secure a conventional mortgage; FHA and VA loans are not available for second homes. Conventional mortgage financing for second homes is available up to 90% of the purchase price.

    Paying your debt obligations on time while keeping monthly balances as low as possible will empower you to be a strong candidate for second mortgage financing. Furthermore, a good place to start in the evaluation of your ability to qualify for a mortgage on a second home is with the debt-to-income ratio. Your total monthly obligations should not exceed 43% of your gross monthly income.

    The most important tip we can give so you can start on the path to acquiring your dream vacation home is to start saving for the down payment. Whether it is by cutting down on monthly expenses or saving money more aggressively, putting together the funds for the down payment should be the first step in your plan. Another way to raise the down payment is by cashing out money from your primary residence. Many people use this as the source of the down payment for their second home.

    Looking for individual guidance tailored to your specific situation that will help you buy that vacation home you’ve always wanted? Talk to one of our loan officers today!


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