The benefits of a vacation home are numerous. Perhaps you’re dreaming of a mountain resort for weekend skiing in the Appalachian mountains, a place on the water for sailing, or a destination on the perfect golf course. Is it hard to finance a second home? It doesn’t have to be if you know your options for a mortgage in Charlotte. With several types of mortgages available, it may be easier than you think to find the ideal second home and the right loan for it.
Understanding Vacation Home Financing
As with any home purchase, securing a mortgage requires meeting financial requirements, including the necessary credit score, and ensuring the value of the vacation home meets appraisal expectations. What else makes financing a vacation home different, though?
Homeowners with a current mortgage on their primary residence may be able to obtain another loan to purchase a second home. Vacation homes like this can be used for weekend trips or for up to half the year to escape the cold weather up north. Don’t mix up these two types of loans:
- Second home funding: A vacation home loan for those who plan to live in the home part of the year or less frequently than their primary residence.
- Investment home funding: A vacation home you plan to rent out (even for short-term stays) needs a specialized loan where the lender knows the property will be income-producing.
You can obtain a mortgage loan for either type of purchase, but lenders will want to know if you plan to use the home as an investment strategy. With the Charlotte housing market booming, some may wish to tap into these loans for rental properties but be sure you let the lender know that in advance.
Is It Hard To Finance a Vacation Home?
Various loan types can be used to purchase a vacation home. Examples may include:
- Conventional mortgages: A typical mortgage in Charlotte is not backed by the federal government. This loan type may be used for those purchasing a second home.
- Home equity loans: Use the equity in your existing home to buy a second home or make a down payment. With competitive home equity loan rates in Charlotte, NC, using the equity can be a financially savvy option.
- Cash-out refinance: In this situation, you are also taking advantage of your current home’s equity, but this type of refinancing will replace the current mortgage with a larger one, tapping into the equity of the home to provide cash in hand.
Home equity loans can be one of the best routes to financing your second home. Some equity loans can be processed from application to closing in a matter of days. That sometimes makes them the best, most hassle-free sources for a down payment on a second home purchase.
Evaluating Your Financial Situation
Before making the decision to apply for a second home loan, consider your current financial health, including:
- Your credit score: A higher score leads to lower interest rates and lower monthly payments. Work to improve your score as much as possible before applying.
- Debt-to-income ratio: Some mortgage lenders have specific limits on your debt-to-income ratio (with 40% or lower being ideal), but there’s ample flexibility to consider.
- Down payment: If you have a down payment, it will lower your monthly payment and improve your interest rate considerably. Consider using a home equity loan to tap into your home’s equity to use as a second home down payment. Typically, most lenders require at least a 10% down payment on a second loan, but the more you put down, the better the loan terms.
Preparing for the Application Process
To obtain a mortgage, Charlotte second-home buyers need to apply with the lender they select. The application process may be a bit more streamlined than your first mortgage, but typically requires these steps:
- Gather your bank statements to prove assets and expenses, as well as your identification and a copy of your W2 and paycheck stubs or, if self-employed, your most recent two years’ tax returns.
- Determine how much of a down payment you wish to make.
- Check your credit report to ensure it is accurate.
- Fill out the application on the mortgage lender’s website or at a local branch office.
- Document all sources of income and show that you can easily afford to make the monthly payment for the second home loan.
Considering Long-Term Costs
Making a wise financial decision is a must. Don’t overlook the long-term costs of owning a second home, including:
- Property taxes
- Insurance costs
- Maintenance and upkeep requirements
- Utilities needed year-round and seasonally
Create a budget that demonstrates what you expect these costs to be. Speak to your real estate agent about local costs or search them within the specific region where you plan to buy a home. Also, note the value of owning a second home as an added wealth-building investment for your portfolio.
Make Your Dream Vacation Home a Reality
With mortgage lenders in Charlotte, NC, ready to help you, now is the perfect time to find your dream home. Take the time to create a budget that allows you to see how much of a loan payment you can afford. Then, reach out to TruLoan for personalized mortgage advice. Contact TruLoan Mortgage now for a consultation.