If you’re dreaming of owning a vacation home, but don’t have enough savings for a large down payment, you may be wondering if it’s possible to put just 5% down. The answer is yes, but there are some important things to consider before taking the plunge.
What is a Vacation Home?
Before we dive into the details of financing a vacation home, let’s first define what it is. A vacation home, also known as a second home, is a property that you own in addition to your primary residence. Typically, people buy vacation homes in desirable locations such as beach towns or ski resorts to use as a getaway.
Financing Options for Vacation Homes
When it comes to financing a vacation home, there are several options available. The most common ones are:
- Conventional Mortgages
- FHA Loans
- VA Loans
Conventional Mortgages
A conventional mortgage is one that’s not backed by the government and usually requires at least a 20% down payment. However, some lenders do offer conventional mortgages with as little as 5% down for second homes.
It’s important to note that if you put less than 20% down on your vacation home, you’ll likely have to pay private mortgage insurance (PMI) which can add hundreds of dollars to your monthly mortgage payments.
FHA Loans
FHA loans are backed by the Federal Housing Administration and require just 3.5% down payment. However, they’re only available for primary residences and not for vacation homes.
VA Loans
VA loans are available exclusively to veterans and require no down payment at all. However, they can only be used for primary residences and not for vacation homes.
Things to Consider
Before putting just 5% down on a vacation home, there are some important factors to consider:
- Can you afford the monthly mortgage payments?
- Will you be able to rent out the property when you’re not using it?
- Do you have enough savings for unexpected expenses like repairs or maintenance?
- Are you comfortable with the added financial responsibility of owning a second home?
The Bottom Line
Putting just 5% down on a vacation home is possible, but it’s important to weigh the pros and cons before making a decision. Consider all your financing options and make sure you’re financially prepared for the added responsibility of owning a second home.
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