Vacation Home Financing 101
Loan Types for Vacation Home Buyers
In this Knowledge Broker episode, trusted lender Floyd Magee clears up common questions about financing vacation homes in the Enchanted Circle. Most of the buyers in our market are purchasing second homes, and the loan process works a little differently than it does for a primary residence.
How Vacation Home Loans Differ
The basics
10% down min
Slightly higher rate Reserves required
Stricter guidelines
The primary difference between a vacation home loan and a standard mortgage is the down payment requirement. Buyers typically need to put down at least 10% of the purchase price. Most loans are conventional since they aren’t for primary occupancy, and the interest rate is only slightly higher — usually about an eighth of a point — compared to a primary home loan.
Underwriting guidelines are also a little stricter. Lenders want to see liquidity and reserves in the bank to make sure the buyer can comfortably handle the payment. Beyond that, the requirements are familiar: a strong job history, solid credit, and financial stability.
Credit Score Expectations
Because vacation home loans are conventional, lenders usually expect a stronger credit profile than they would for a primary home. While primary residences allow for a wider range of loan options, vacation homes require higher credit scores to qualify.
Credit Counts
Expect higher credit score requirements than with a primary home.
Renting Out Your Vacation Home
Rent vs. Invest
It comes down to weather you use it yourself, and if you have control over the rental schedule.
Many buyers want the flexibility to rent their property on platforms like VRBO or Airbnb. The good news: as long as the property is occupied part of the year, it still qualifies as a vacation home under Fannie Mae’s rules.
Short-term renting is allowed, provided the owner retains control of the property. The exception comes with rental programs that limit your personal use or control.
When a property is purchased strictly as a rental, with no personal occupancy, it becomes an investment property. That shifts the requirements.
If you’re considering a vacation home purchase, please don’t hesitate to reach out anytime. We’ll connect you with trusted lenders who can walk you through your financing options.
