If you are interested in buying a vacation home, you may find that it is more difficult than buying a regular house. In order to get approved for a loan to purchase a vacation home, you’ll have to have very good credit and a high income. This eliminates many people trying to buy a second home for vacation purposes.
How to Buy a Vacation Home
If you don’t have the cash necessary to purchase a vacation home, you may need to use a mortgage to make the purchase. To begin this process, you’ll need to fill out a mortgage application, and provide details about your financial life. The lender will want proof of your income, and proof of your assets. Typically, the lender will want to make sure that you have enough assets on hand to make your mortgage payment for a certain amount of time if you lose your income.
Your loan application will be sent to an underwriter at that point. The underwriter will evaluate your credit profile and your financial situation to determine if you are a good credit risk. The underwriter will want to make sure that you can afford to make both your primary mortgage payment, and your new mortgage payment. An appraisal will need to be done on the property that you want to buy to make sure that the value of the home is sufficient to lend against.
When you want to buy a vacation home, the lender will probably require you to come up with a large down payment. Some lenders want buyers to put up as much as 20 percent of the value of the home when making a purchase. This helps reduce the risk for the lender when issuing a mortgage.
When you purchase a second home, it can provide you with some tax benefits. The interest that you pay on your mortgage can be deducted from your taxable income. Even if you already take a deduction for the interest that you pay on your primary residence, you can still deduct the interest on your second home as well. This gives you a fairly large tax break in most cases.
Buying the Home
While buying a second home can provide you with a nice place to get away from the rigors of everyday life, you need to make sure that you can afford it. As long as you have the money, it can be a good investment over the long-term.
Visit Paramount Equity® and talk to a Financial Specialist