Today, many who have attained the American Dream of home ownership are taking it a step farther – and dreaming of owning a vacation home. Many are making that dream come true.
According to the National Association of REALTORS® (NAR), 1.13 million vacation homes were sold in 2014. That’s a 57% increase over 2013, and the highest level since NAR began tracking such sales in 2003. 2015 figures have yet to be released.
While many baby boomers are purchasing vacation homes in locations where they intend to reside after retirement, some who have already retired are purchasing “winter homes” in the sunshine or “summer homes” in the northern climates. Others are opting for a get-away cabin where they can relax on week-ends.
Whatever your choice, if you dream of a vacation home, it’s time to get your finances in top shape.
NAR reported that 70% of vacation home buyers use a mortgage to finance the purchase. If that will also be your choice, here’s what you need to know:
You need good credit. Clients with scores above 720 get the best rates, while scores in the mid-600’s are required if you want to be considered at all.
If a vacation home purchase is in your future, start now to make sure your credit is in order. Get a copy of your credit report and check it for errors. Even FICO admits that a huge percentage of credit reports do contain errors – and some of them can be damaging to your credit.
If your scores could be higher, get to work on raising them long before you’re ready to make a loan application.
You’ll need at least 10% for a down payment. While programs exist to help you own a primary residence with as little as 5% down, lenders want a larger investment when you purchase a second home. For the best interest rates and to avoid mortgage insurance, start saving toward the 20% mark.
You’ll need extra cash on hand. Once the down payment and closing costs have been paid, you’ll need enough left in your accounts to cover two months’ worth of expenses on that second home.
You’ll need enough income to support both properties without exceeding a 43% debt to income ratio. In addition to the monthly cost of mortgages and taxes on both of your homes, your student loans and car payments must total 43% of less of your monthly income. (There can be exceptions to this rule in certain circumstances.)
You can’t claim projected rental income on your second home as an addition to your income. Remember, this is a vacation home and as such it comes under a specific set of guidelines. Investment (rental) properties come under a different, stricter set of guidelines.
When you’re thinking of a vacation home, call the Mike Clover Group.
Here at Homewood Mortgage, the Mike Clover Group, we offer low closing costs combined with the lowest mortgage interest rates possible – whether you’re purchasing villa rentals, a primary home or a vacation home.
We’re always happy to get you pre-approved so you can make purchase offers with confidence, and we’ll be glad to give you pointers on raising those credit scores. Just give us a call at 469.621.8484 or visit us online at www.mikeclover.com.
18170 Dallas Parkway
Dallas, TX 75287