Are you planning to invest in real estate or purchase a vacation home? Real estate can be a decisive step on the path to financial independence. Whether you dream of an investment property to generate income or a peaceful vacation home for relaxation, we are here to assist with customized mortgage solutions.
This guide will help you understand mortgage options for vacation and investment properties, how they differ from primary residence loans, and what to expect during the financing process.
Please, note: We are craving a tailored approach, so this program is more of an informative nature, to give you an approximate understanding of what to expect from us during making a decision to fund or not. These criteria may vary depending on your exact property and scenario.
Before diving into mortgage programs, it’s essential to understand the different types of properties and how they affect loan options.
Your primary residence is the home where you live most of the time. It is eligible for federal tax advantages, such as deductions for mortgage interest. You can only claim one as your primary residence if you own multiple properties.
For example, if you live in a house in Florida for 49 weeks of the year but spend three weeks at a timeshare in New York, your primary residence is the house in Florida. Determining your primary residence involves your voter registration, driver’s license address, and where you receive most of your mail.
A vacation or second home is a property you own in addition to your primary residence. It might be a beach house where you relax on weekends or a condo in another city you use during frequent travels.
Vacation homes are not your “home base” but are used for enjoyment. Unlike investment properties, they are not purchased to generate rental income.
An investment property is a real estate you buy to make money, either by renting it out or holding it for appreciation. Examples include rental properties or homes purchased to “flip” and sell for profit. Sometimes, a vacation home can also be considered an investment property if you rent it out when not in use.
Financing a vacation or investment property is different from financing a primary residence. Lenders view these properties as riskier investments because they are often considered luxuries rather than necessities. As a result, lenders typically impose stricter requirements for these loans.
For a primary residence, you may be able to put down as little as 5% (or less) of the purchase price. However, vacation and investment properties usually require a larger down payment—often between 15% and 20% of the purchase price.
Vacation and investment property loan interest rates are generally higher than those for primary residences. Lenders may also be more stringent about your debt-to-income (DTI) ratio, requiring lower debt levels than your income.
To mitigate the risk associated with these properties, lenders may require you to have reserve funds available. If you own a primary home and are looking to finance a vacation or investment property, it is advisable to have sufficient funds to cover at least six months to one year of mortgage payments for both properties.
A range of loan options makes purchasing a vacation or investment property possible. We work with you from prequalification to closing, providing personalized service every step of the way.
Conventional mortgages are the most common option for financing vacation or investment properties. These loans are not government-backed, meaning they generally have fewer restrictions but may require higher down payments for non-primary residences.
For vacation or investment properties, lenders often require down payments of 20% to 30% of the property’s purchase price. Additionally, lenders will carefully evaluate your credit score, income, and asset profile to ensure you can manage the additional mortgage.
Government-backed loan programs, such as FHA, VA, and USDA loans, are only available for primary residences. These programs provide more lenient qualification requirements, but they cannot be used to finance vacation or investment homes.
Investing in real estate, whether for rental income or as a vacation home, can provide significant returns. Securing the right financing is key to making the most of your investment. Buying an investment or vacation property can be a rewarding experience with the right planning and support.
We are here to help you navigate your options, find the best mortgage program, and make informed decisions. Reach out today to see if you can get prequalified and boost your bargaining power as you search for your ideal property.
At Save Financial, we specialize in a wide variety of loan options to meet your unique financial needs. Our offerings include hard money loans secured by real estate, fix and flip loans, bridge loans, construction loans, purchase loans, and refinance loans. Whether you have good or bad credit, our experienced team is dedicated to guiding you through the entire loan process. Discover how we can help you secure the perfect loan for your situation. Contact us today to learn more about our comprehensive loan solutions!