More and more Americans are investing their hard-earned money in a vacation home. This type of property is the real estate dream. Imagine owning a property in your favorite place which you can come home to when you need an escape from the pressures of your busy life. As a matter of fact, the phrase "vacation home" alone can make anyone feel excited and giddy.
If you are planning to invest in a vacation home, here are the basic things that you need to prepare:
Good Credit
To qualify for a vacation home mortgage, you will need a credit score of at least mid-600s. The higher your score, the better chances your loan will be approved.
"Our best rates tend to be for clients who have a 720-740 FICO score. As the score goes down, the costs increse incrementally," explained Quicken Loans Vice President Bill Banfield.
A Bigger Down Payment
For primary home residences, conventional loan programs allow as little as 5 percent down payment. For a vacation home, you will need more. You will be asked to put down at least 10 percent. If you want to get the best possible rates without paying mortgage insurance, a downpayment of at least 20 percent is recommended.
Extra Cash
Aside from having enough money to pay for closing costs and moving expenses, you will need extra cash on hand equal to at least two months worth of expenses on the vacation property. Having a cash reserve is a requirement to gain loan approval.
Enough Income to Support Both Properties
Lenders look for a debt-to-income ratio of 43 percent or less for both the vacation home and primary residence. This means that the toal cost of the mortgages and taxes on both homes, together with other household debt such as car payments or student loans, should not equal more than 43 percent of your total family income.
"If you're pushing the envelope with your debt-to-income, it helps to have a higher credit score or put down a bigger down payment," suggested Grayton Mortgage President Kevin Leibowitz.
