Second Home Mortgage Options
As mentioned early in this article, government loans like FHA, VA, and USDA are only for primary residences. However, Fannie Mae and Freddie Mac conventional loans plus jumbo loans allow second home financing. Plus, there are great advantages to using conventional loans these days. Therefore, making the qualification easier and the dream more obtainable. These advantages include:
How To Finance A Vacation Home
Do you dream of buying a vacation home? Whether its a beachside cottage or a mountaintop cabin, you can make your dream a reality by learning how to finance a vacation home. Just look at the recent spike in the purchases of vacation homes. In 2014, the National Association of Realtors® reported that around 1.13 million units changed ownership. Not only was this figure up by a staggering 57% over the previous year, but it was the highest level recorded since the NAR surveys began in 2003.
How are so many people affording their dream homes?
Question : Can I Afford The Ongoing Expenses Of Maintaining A Vacation Home
Roofs leak and appliances break. Are you ready to take on the added expense of maintaining a second home? A general rule of thumb is to set aside 12% of your homes purchase price for maintenance and repairs. So, if your second home is valued at $200,000, youll need to set aside $2,0004,000 each year for upkeep. Youll also have to account for annual property taxes, as well as neighborhood homeowners association fees if they apply. Here are other expenses youll need to cover:
- Homeowners insurance. A waterfront property will likely be more expensive than your primary residence when it comes to insurance. Most coastal states require flood insurance, especially in areas that are prone to hurricanes. Prices will vary from state to state, so ask your insurance agent to provide an estimated cost for the area youre interested in.
- Property management. If youre going to visit your vacation home only a few times each year, you should consider hiring a property management company to coordinate maintenance jobs. This is an added cost, but it will save you the stress of worrying about your home when youre not there.
- Ongoing bills. Youll pay for utilities, internet/cable and trash collection just as you do at your primary residence. Be sure to budget those items as ongoing expenses.
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The Time To Invest Is Now
Short-term rentals , including vacation rentals, are an exciting and rapidly growing new asset class. Airbnb and HomeAway, among others, are raising awareness of this increasingly popular, large opportunity. In fact, the vacation rental industry is projected to reach over $13 million in rental revenue in the United States in 2021, and the Coronavirus pandemic has only accelerated the industrys demand.
Since vacation rentals are perceived by many as a safer travel option than hotels, a wider market of people are trying them, and liking them.
For travelers, especially during this tenuous era where the very air and unclean surfaces can lead to hospitalization or worse, the individualized attention one might find renting from an Airbnb-type property rather than a monstrous hotel brand can bring some solace to travelers of every level of germaphobe. – Travel Writer Michael Alpiner, Forbes
Alpiner further notes, vacation rentals often give the traveler more space for less money overall and the convenience factor is substantial. Statista highlights the tremendous growth of the market with powerful 2021 vacation rental statistics:
- Vacation revenue in the US is expected to show an annual growth rate of 10.55%
- The average revenue per user is expected to amount $299.96 in 2021 and
- Vacation rental user penetration is 13.3% in 2021, which is expected to hit 18.1% by 2025.
No Down Payment Mortgages
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The dreaded down payment often keeps young Canadians from being able to afford their first home for years and with the price of houses rising in many of the major cities, even 5% of the purchase price is typically a larger number than most people are comfortable with. So when you hear about the possibility of a no down payment mortgage, its completely understandable that youll definitely want to consider it as an option.
Heres everything you need to know about the no down payment mortgage, to make the best choice for you and your finances.
Visit this page to find out the cost of buying a house in Canada.
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Set Up Your Vacation Home As A Vacation Rental
Once the home is yours, its time to think about whether you intend to use your new vacation home as a short-term rental.
If youre planning to rent your vacation home, youll want to secure trustworthy vacation rental property management. The right company can deliver significant income and allow you to enjoy your home more when you visit.
If youre weighing your vacation rental management options, here are some questions to keep in mind:
- Do you want to manage the vacation rental yourself?
- How much freedom do you want to have to use the home for your personal vacations?
- Is it more important to you to have the vacation rental as a project or hobby, or would you rather visit and simply relax?
- Are you interested in earning passive income and helping your home pay for itself?
- Does your home need improvements or design upgrades to optimize your income and your guest experience?
Vacasa is the leading full-service vacation rental management company in North America, so we know firsthand the kind of income you can earn when your vacation home is truly working for you. Reach out to us for end-to-end helpfrom buying the right home to managing it effortlessly.
Special Financing Considerations: Lakefront Cottages
If the cottage is on the water, lenders will ask for a potability test, to ensure that the water is safe or filtered. If the water is not deemed safe, you can expect the lender to require you to install a filtration system before or after closing . Lenders will also look for flood risks in certain areas.
IMPORTANT: You should always have a financing condition in your offer on a cottage or second vacation home usually for at least 10 business days. This allows for the appropriate water tests to be completed and for an appraisal to be scheduled .
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Refinancing Options: Points To Consider
Your primary residence is not the only type of property you can refinance to take the equity out. The secondary home, vacation home or income property can be used if you have built enough equity and as long as you have the financial ability to borrow.
Consolidating debt into your mortgage is worth considering if youre paying off high-interest loans on , for example. This could potentially improve your financial position, allowing you to take on a second property.
When refinancing your home, its important to consider avoiding pre-payment penalties by using a blend and extend approach if your financial institution allows that option. Blend and extend means merging your existing mortgage rate with the new current mortgage rate for a brand-new blended rate.
The length of the mortgage could also come into play in these situations. For example, if you have 12 years left on your existing mortgage, you could extend it back to a 25-year mortgage, along with a 25-year mortgage on the second property.
A Vacation House For Free Will Be A Pipe Dream If You Dont Do The Math
The real estate business is not an easy business, its a simple business when you are educated and understand the various elements of what it takes to produce an income producing asset: like a vacation house for free. It wont be easy but it will be worth it.
Step #1: Do The Math
Have you ever watched the shows Shark Tank or The Profit? If you havent, budding entrepreneurs and business owners pitch their idea or product for private investment capital from successful investors like Mark Cuban and Barbara Corchoran. Its always funny when the contestants are pressed with questions about knowing the numbers of their business, a common response from the sharks is if you dont know your numbers you dont know your business, we believe this is true.
If you are serious about getting a vacation house for free, what a person is evaluating are the numbers of the business opportunity . The math is simple, its not calculus. Every real estate opportunity, whether a traditional rental, flip, commercial building, is a micro-business and in order for a business to stay in business and be profitable in order to truly be a Vacation House For Free. The revenues, rental income and additional fee, cleaning or pet, has to sufficiently exceed expenses which include, but are not limited to
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Mortgages For Second Homes
Second homes usually receive better mortgage interest rates and require lower down payments than investment properties.
Lenders typically require that a second home be at least 50 miles away from your primary residence, while an investment property is less than 50 miles awaybecause you arent likely to vacation in a home so close to where you live full-time. Being dishonest about your intentions is considered occupancy fraud.
Understand yourmortgage loan options for buying a vacation home.
Financing Options For Vacation Home Loans
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How Do You Improve Your Chances Of Being Approved For A No Down Payment Mortgage
Being approved for a no down payment mortgage can be a challenge. However, there are a few factors you can work on to improve your chances of being approved.
- While each lender has its own set of criteria, generally, lenders will want you to have a good to excellent credit score. This means youll need a of at least 650. In addition to that, youll want to make sure that you have no prior late or missed payments on any of your credit products within the last year or two.
- Employment There are three things a lender looks at when evaluating your employment.
- Income How much money you make in comparison to how much you want to borrow.
- Stability How long have you had your job and how stable it is.
- Loss is income If you were to have a drop in income would you still be able to make your payments.
Check out these hidden costs of buying a home.
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Should You Get A Mortgage With No Down Payment
A no down payment mortgage sounds like a great idea, especially if youre currently giving away a large chunk of your income to rent an apartment while trying to save so you can purchase your first home. But before youre seduced by the idea you need to decide whether or not this financing option is the best strategy for you at this point in your life. There are a few conditions that should be met before you should consider a no down payment home loan:
- A stable income
- Being able to afford both a monthly mortgage payment and other life expenses
- Being able to financially handle a decrease or loss of income
If all of these conditions describe your current financial situation then a no down payment mortgage is, in fact, a good idea and you could potentially seriously benefit from it, just remember that while you might think you can handle it a lender still needs to decide whether or not they agree.
Unfortunately, if none of the above conditions describes you and your current financial situation then a no down payment mortgage is definitely not a good idea for you right now, we suggest you continue to save while rethinking your current spending and saving strategies.
Find out if you should buy or rent?
Evaluating The Revenue Potential Of A Vacation Home
Once you have found a great vacation rental home, it is essential to evaluate the property for its income potential. We recommend using AirDNA to give you a clear picture of your expected earnings and vacancies. AirDNA has both free and paid tools that provide you insights on a single propertys:
- Annual Revenue
- Net Operating Income
- And more
You will also have larger market insights and top market listings at your fingertips. While we will always encourage you to consult your own advisors or personalized advice, AirDNA can provide you with extra insights into a propertys investability.
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Why You Should Invest In A Vacation Home
Buying a vacation home allows a homeowner the opportunity to enjoy a new city and become a seasoned real estate investor at the same time. Heres why and how to get started.
The vacation home landscape has changed significantly since the arrival of websites such as AirBnB in 2008, and the rebranding of Vrbo in 2019. Not only has a spare bedroom become a cash cow, people are learning that second and third homes can yield the best of both worlds. Rather than paying for pricey hotels on vacation, a second home can allow a homeowner the opportunity to enjoy a new city and become a seasoned real estate investor at the same time.
Although the flexibility of having multiple homes allows owners to pull off geographic arbitrage and unlock a variety of tax benefits, most people are intimidated by having another mortgage . But the reality is that homeownership is a highly lucrative venture and, in most states, really straightforward.
Here are three reasons why you should invest in a vacation home, and three simple ways to get started today.
To Qualify For A Second Mortgage Youll Need:
- A debt-to-income ratio below 41%: This percentage is determined by dividing your monthly debt by your gross monthly income. It essentially tells mortgage lenders how much of a financial safety net you have, and if youd be able to still pay off your loans in the case of unforeseen circumstances.
- A good credit score: Maintaining a healthy credit score is always a good idea, but its especially important when buying a vacation home. The higher your scorea 620 or above is considered pretty goodthe more likely youll be to qualify for a conventional home loan .
- Cash reserves: Lenders may look at how much money you have tucked away. Buyers with a savings account, a growing IRA, an emergency fund, and a college fund appear safer than a borrower with little money to their name.
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How To Buy A House With No Money
If you want to buy a house with no money, there are two big expenses youll need covered: the down payment and closing costs. Both can be avoided if you qualify for a zerodown mortgage and/or a home buyer assistance program.
Five strategies to buy a house with no money include:
When combined, these tactics could put you in a new home with $0 out of pocket.
Or you might get your down payment covered, and then youd only need to pay closing costs out of pocket which could reduce your cash requirement by thousands.