Vacation Home…in September?
In the mortgage industry, a vacation home is known as a second home, and although many are preparing for winter, others are thinking this is the time of year to buy a 2ndhome somewhere. Nations Lending’s Personal Mortgage Advisors tell our clients that the basic lending rules for second homes are like the rules for primary residences. You can purchase a second home with only 10% down, the cost of the loan in terms of rates and fees is the same as with a primary residence.
There are some factors to consider when obtaining a mortgage for a second home. First, since it is to be used as a residence you must be able to qualify for the total housing payment for your current residence plus the second home you are purchasing. Second, the second home must be “geographically distant” from your primary residence. If you live in a neighborhood on the westside of Cleveland and want to purchase a condo in Lorain as a second home, you will have a hard time finding a lender that would approve the transaction. Additionally, some lenders require second homes to be traditional resort or vacation areas. To qualify as a second home, the intent must be obvious. If you find yourself trying to stretch into a viable explanation, then chances are the underwriters will have a difficulty believing the property will be used as a residence and not a rental or investment property.
Many of NLC’s clients ask about how they can convert a second home to an investment property in the future. This can occur if you have fulfilled the intent to occupy that you have agreed to as part of your application process and by signing the Trust Deed. Should the lender be able to determine that you never intended to use the property as a residence they can issue a Notice of Default and demand the mortgage be paid in full.
For those nearing retirement, purchasing a second home where you are considering living can be a very good financial decision. When the time comes to retire you may decide to sell your current primary residence, possibly using the proceeds of the sale to pay off your retirement home and enter retirement without the number one cost for retirees: housing.
One additional side note. Be sure to investigate tax policies of the federal government and the states. NLC’s Personal Mortgage Advisors are not tax advisors, but as you can imagine there are sections of the tax code that deal with second homes and how you can, or must, treat them when filing taxes.