Vacation properties are an attractive investment because, unlike a timeshare or hotel, the property is yours to use whenever you want. The pandemic caused a notable increase in vacation home sales, and with more people working remotely than ever, the trend will probably only continue to grow.

Below are the steps to getting a vacation home loan and finalizing your purchase!

3 Quick Guide to the Vacation Home Loan

1. Figure Out How You’ll Use the Property. If you don’t have a permanent home, the vacation home can become your primary residence. If the purchase price isn’t more than lenders’ loan limits, you can qualify for a vacation home loan with a 3% down payment and reap the tax benefits of home ownership. If you’re buying a second home, you usually must put down 10-15% to secure the loan. The same tax benefits apply as they would a primary residence. You can also rent out the property part or full time to lighten the load of mortgage payments. An investment property loan will increase interest rates and the down payment.
2. Get an Agent. Finding a knowledgeable real estate agent is an essential part of the home-buying experience. An agent will know the local market and have contacts with any inspectors or contractors you need. 
3. Preapproval. Mortgage preapproval shows sellers that you’re ready and able to buy. Get your preapproval one or two months before your ideal purchase date. Applying to multiple mortgage lenders will not affect your credit score if you submit the applications within 45 days.

Requirements for vacation home loans include:

• Debt-to-income ratio: For vacation property, borrowers should expect to finance with a 43% debt-to-income ratio or higher.
• Credit score: For a vacation home, you’ll need a credit score of at least 640.
• Reserves: Vacation property typically requires reserves that equal monthly mortgage payments between two and six months.

Pros and Cons of Purchasing a Vacation Home

Before going forward with a vacation home loan, weigh the pros and cons to see if the purchase is something you can afford.

The Pros:

• It’s yours: Owning a vacation home means you can come and go as you please without worrying about vacancy or availability; you can escape on weekend getaways or let friends use it when they want to get out of town.
• Investment: Putting your money into real estate is a great way to see an investment grow in value.
• Rental income: Vacation rental properties are a great source of extra income.
• Vacation savings: Reduce vacation costs by eliminating nightly hotel rates and eating at home.

The Cons:

• Monthly mortgage payments: Taking on a second mortgage may not be realistic.
• Expenses: Owning a vacation home makes you responsible for all taxes, utilities, insurance, repairs, and maintenance.
• Depreciation: Your investment may not necessarily increase in value.
• Single location: Your vacation home only allows you to visit one town or area.

Partner with Mortgage Consultants Group for Your Vacation Home Loan

If you’re looking for vacation home loan options, Mortgage Consultants Group is here to help. Call (916) 669-1682 to speak with our experienced and knowledgeable staff today!