Investing in a Vacation Property – What You’ll Need to Have to Get A Mortgage Approved
With approximately one million people having purchased vacation homes in the last year, this type of residence is gaining popularity for those who are interested in a home in a beach setting or a vacation hot spot. Vacation properties are one of the ways to invest in real estate and actually enjoy the house from time to time.
However, while a second home can seem like a great purchase and solid investment opportunity, there are different requirements that go into this type of purchase. If you’re considering a vacation home as one of the ways to invest in real estate, you may want to be aware of the following financial factors.
The Down Payment Amount
If you currently have a primary residence, you may be aware that you don’t need to put down 20% or even 10% in order to make a primary home purchase, but things are different when it comes to a vacation home. This is because there’s more risk for the mortgager. Conventional loan requirements are higher for a second home. A second home requires at least 10% down. With this type of conventional loan, you may only rent the home for 180 days. Also, these types of loan will not work for a second home.
If you plan to rent the home for more than 180 days, then you would need to get an investment property loan and put a 20%-25% down payment on it. Because of this, many homebuyers utilize the equity they have in their first home or other investment properties to make up the down payment.
Click here to find out how much equity home owners have on their property to see if it is worth pursuing to buy.
About The Credit Score
Most people that have a credit score of more than 600 have the ability to use a mortgage product and purchase a home, but if you’re buying a second property, you’ll need a higher credit score in order to facilitate the purchase. Because there is more risk involved, lenders will want to make sure you’re a good bet. In addition, if you do have a lower credit score, lenders like Fannie Mae may also expect you to put more down to decrease the risk involved for them.
The Income Required
If you’ve been through the mortgage process for your first home, you’re probably aware that your debt-to-income (DTI) ratio needs to be a certain amount in order to qualify for a mortgage. While your DTI for a primary residence may be a little bit higher since it’s your only payment, this ratio will be lower for your vacation home since it’s higher risk. This means you’ll require a slightly higher income than for your primary residence in order to get approved.
Deciding to purchase a vacation home can be a very exciting concept for many people, but there are a number of different financial requirements that go along with buying another residence.
Vacation rentals are one of the ways to invest in real estate, however they are not an optimal option for creating wealth to start up your real estate investing business. The best way to invest in real estate is much more boring and requires less high-end work to be done. Stick to real estate valued at the low to middle median price and 3/2/2’s in good areas with plenty jobs/businesses nearby.
See this article for How to Pick Profitable Rental Property.For more information on the ways to invest in real estate and building your wealth, keep up to date with the realestatewaypro.com newsletter.