If you’re in the market for a vacation home, you’ve got company. Vacation-home sales accounted for 16 percent of all transactions in 2015, according to the National Association of Realtors 2016 Investment and Vacation Home Buyers Survey. Here are factors to keep in mind when looking for your vacation home:
Down payment
You’ll likely need a higher down payment than you did on your first mortgage. It’s not uncommon for lenders to ask for 25 percent, depending on your financial situation and the property you’re buying. According to the 2016 Investment and Vacation Home Buyers Survey, more than half of buyers in 2015 who financed their purchase with a mortgage financed less than 70 percent of the purchase price.
Credit score
Similar to the higher down-payment requirement, a higher credit score — usually well into the 700s — is preferred by lenders for you to qualify for a second-home mortgage.
Interest rates
Are you noticing a trend? Interest rates on mortgages for second homes also may be higher than rates for primary homes. A large down payment, even one larger than required by your lender, can reduce your total cost over the life of the loan.
Insurance
If “vacation” for you means the beach or other waterfront, make sure you check to see if you’ll need flood insurance. Certain areas may not be covered by the National Flood Insurance Program, resulting insurance premiums that may be cost-prohibitive. And lenders will likely not finance purchases that can’t be properly insured.
Second homes can be a great investment and source of enjoyment for your family. Consider these four factors and the advice of your lender and financial advisor to find the right property and the right mortgage option.