If you’re dreaming of owning a vacation home, the idea of getting a mortgage for it is probably on your mind. The good news is that yes, you can get a mortgage on a vacation home!
However, there are some differences between getting a mortgage for a primary residence and getting one for a vacation home. In this article, we’ll explore the ins and outs of getting a mortgage on a vacation home.
What is a Vacation Home?
First things first – what exactly is considered a vacation home? A vacation home is typically a second property that you own and use for recreational purposes. It’s not your primary residence and it’s not an investment property that you rent out to tenants.
How is Getting a Mortgage on a Vacation Home Different from Getting One for Your Primary Residence?
When it comes to getting approved for a mortgage on your primary residence, lenders typically look at your income, credit score, debt-to-income ratio and job stability. However, when it comes to getting approved for a mortgage on your vacation home, lenders take additional factors into consideration.
One of the main factors lenders consider when approving mortgages for vacation homes is how often you plan to use the property. If you plan to use the property frequently throughout the year, then lenders may consider it more of an investment than just a recreational property.
Down Payment Requirements
Another difference when it comes to getting approved for mortgages on vacation homes versus primary residences are down payment requirements. Lenders usually require higher down payments on second homes than they do on primary residences. You may need to put down 10% to 20% or more of the purchase price as opposed to 3% to 5% that’s required for most primary residences.
Interest Rates
Interest rates can also be higher when it comes to mortgages on second homes. Lenders consider second homes a higher risk than primary residences because if you fall on hard times financially, you’re more likely to stop making payments on your second home before your primary residence.
Can You Still Qualify for Tax Benefits?
Yes, you can still qualify for tax benefits when you own a vacation home. However, the rules are a bit different depending on how often you use the property. If you use the property for at least 14 days out of the year or more than 10% of the number of days it’s rented out during the year (whichever is longer), then it’s considered a personal residence and you can deduct mortgage interest and property taxes just like with your primary residence.
If you rent out your vacation home for more than 14 days out of the year, then it’s considered an investment property and there are different rules that apply for tax deductions.
The Bottom Line
In conclusion, getting a mortgage on a vacation home is definitely possible. However, there are some differences in requirements compared to getting one for your primary residence.
Higher down payments and interest rates may apply. But as long as you plan accordingly and work with a reputable lender, owning a vacation home can be a dream come true!