Investment Strategy: Vacation Home Loans and Rental Property Mortgages

For the past few years, the vacation home mortgage market has been piping hot. In fact, according to Forbes, Americans purchased more than 700,000 vacation homes in 2013 alone.

While a second primary residence may be a solid financial move for individuals looking to diversify their assets, a vacation home loan has its own set of risks and qualifiers to understand upfront. For example, these properties typically have more rigid credit requirements than a traditional home loan.

That’s because a secondary primary residence underwriting puts more pressure on a borrower's income than the investment loan requirement. With a second primary residence, the borrower’s income will need to cover all existing home loan debt plus the new vacation home mortgage.

Your options for financing a vacation home will also vary based on numerous factors and the new Tax Cuts and Jobs Act could pose risks for some borrowers. Even so, there are many tricks and tips to getting the best deal possible, and we can help. For example, did you know that you could potentially avoid paying private mortgage insurance by throwing down a little more cash toward the vacation home mortgage down payment?

We’re here to answer your questions about choosing a smart down payment for investment property, your insurance and tax considerations, and everything else you need to know to finance your new vacation home. Come in for a chat today!

Just as we noted with vacation properties, rental property mortgages also have stringent borrower requirements and not all properties are eligible for a rental property mortgage or home equity financing. For these properties, alternative financing is situationally necessary.

There are many types of home loans to choose from and clients often ask about using an FHA loan for rental property. Unfortunately, you can never use an FHA loan to acquire a rental property. However, you can convert a home that was financed with an FHA loan as a primary residence into a rental property (without refinancing) in some very specific circumstances.

As you can see, the process can become quite complicated rather quickly. Mortgage interest on rental property and mortgage rates for rental property vary based on a laundry list of factors. Be sure to talk to an experienced mortgage lender before you invest your nest egg!