When you decide to buy a vacation home, obtaining a mortgage may be different from the loan process required when buying a primary residence. Here is a five point checklist to help you prepare for the special considerations banks have for second home mortgages:
1. Bigger Down Payment- While only 3% down is required for a primary home mortgage, lenders may demand as little as 10-20% down or as much as 50% down payment for a vacation home. Some homeowners choose to tap into the equity of the primary home to raise cash for the down payment.
2. More Reserved Assets- Since your entire financial portfolio will be considered to determine your ability to carry a second home mortgage, make sure you have at least six months of reserved income to prove you can endure a temporary financial setback.
3. Higher Credit Scores- While traditional home mortgages will consider a baseline credit score of 680, when buying a vacation home expect the financing company to require credit scores of 740 or higher. Make sure your credit score and the amount of debt you carry has been tailored for a second home.
4. Debt-to-Income-Ratio- Along with your excellent credit and acceptable down payment, expect the banks to look at your debt-to-income ratio. Prepare for your vacation home purchase ahead of time by eliminating revolving credit, car notes, and any other lines of credit that contributes to your family's debt.
5. Rental Income Benefits- You can defray some of the costs of a vacation home by using it as a rental property when the family is not on vacation. While this may not qualify you for the loan, it can certainly help with paying the monthly mortgage.
Contact Midland Mortgage to start the process for your dream vacation home today. We offer low interest rates and can help when you decide to refinance your present vacation home.