If you’re considering buying a vacation home, one of the questions that might be on your mind is whether or not you can get a mortgage for it. The answer is yes, but there are some things you need to know before you start shopping for lenders.
What is a vacation home?
Before we dive into the details of getting a mortgage for a vacation home, let’s define what we mean by “vacation home.” A vacation home is simply a second property that you own but do not live in full-time. It’s usually located in a desirable location like a beach town or mountain resort, and it’s typically used for vacations and weekend getaways.
Can you get a mortgage for a vacation home?
Yes, you can get a mortgage for a vacation home. However, the process and requirements may be different from getting a mortgage for your primary residence.
The down payment
One of the biggest differences between getting a mortgage for your primary residence and getting one for a vacation home is the down payment requirement. While you may be able to put down as little as 3% when buying your primary residence, most lenders require at least 10% or 20% down payment for vacation homes.
The interest rate
The interest rate on your vacation home mortgage may also be higher than what you would pay on your primary residence. Lenders consider second homes to be riskier investments than primary residences because they are not occupied full-time. As such, they may charge higher interest rates to offset this risk.
Your debt-to-income ratio
Your debt-to-income ratio (DTI) is an important factor that lenders consider when deciding whether or not to approve your mortgage application. Your DTI is calculated by dividing your monthly debt payments by your gross monthly income. Lenders typically want to see a DTI of 43% or lower for vacation home mortgages.
What else do you need to know?
In addition to the factors mentioned above, there are a few other things you should keep in mind when getting a mortgage for a vacation home.
- You may need to show proof of rental income if you plan to rent out the property when you’re not using it.
- You may need to have a higher credit score than what’s required for your primary residence mortgage.
- You may need to have some cash reserves on hand in case of emergencies or unexpected expenses.
The bottom line
Getting a mortgage for a vacation home is possible, but it may be more challenging than getting one for your primary residence. Be prepared to put down a larger down payment, pay higher interest rates, and meet stricter requirements. However, if you’re able to meet these requirements, owning a vacation home can be a wonderful way to enjoy some rest and relaxation in your own private getaway.