With more and more house hunters seeking primary residences just in the last year, many are also expected to purchase secondary or vacation properties as a home away from home.
The National Association of Realtors (NAR) reported vacation home sales increased 16.4 percent in 2020, outpacing the year-over-year primary residence market growth of 5.6 percent.
NAR Chief Economist Lawrence Yun says this trend is set to continue in the near future.
“With many businesses and employers still extending an option to work remotely to workers, vacation housing and second homes will remain a popular choice among buyers,” he tells mortgage banking news site MReport.
Yun’s predictions have been on point thus far: The NAR reported total vacation home sales increasing 57.2 percent from January to April 2021, compared with 20 percent growth the same time last year.
Considering these statistics and trends, and the freedom for a spur-of-the-moment getaway, vacation homes have become an attractive investment. Note there are several items to consider before scouting locations and listings, such as qualifications, requirements, tax implications, credit ratings, debt-to-income (DTI) ratios, and other financials. To help navigate this process, it’s best to work with a reputable lender specializing in secondary mortgages.
Learn more about the specifics of vacation home financing, such as requirements, down payments, benefits, tax implications, pros and cons, and more.
Prior to researching vacation home destinations and listings, it’s best to decide how much you can afford, what you can put down, and financing options. Similar to a primary mortgage, borrowers must meet certain stipulations, requirements, and qualifications.
You also must obtain necessary financial documents before meeting with your lender. Check out our recent blog: “How to Finance A Home” for more information.
Be mindful of the following requirements:
With requirements and documents in order, the next step is seeking the help of a mortgage lender. As aforementioned, government-backed entities such as the FHA and VA don’t support secondary home loans. There are, however, many conventional options offered through entities such as the Federal National Mortgage Association, also known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, aka Freddie Mac. Both groups work by purchasing loans through lenders such as Contour Mortgage to navigate the secondary housing market.
Consider a few other pertinent questions before diving into to your finances:
When filing annual personal income tax returns, primary homeowners can claim deductions earned through mortgage interest and property taxes. While this is also applicable to secondary home ownership, borrowers must consider contrasting implications, such as how often the home is utilized by the owner, versus renting it to other parties.
Per the Internal Revenue Service (IRS), if the residence is being used as a rental property for more than two weeks per year, the homeowner must report any income received as a result. Keep in mind that while you might be renting the home to others to offset expenses, such as mortgage payments, taxes, and maintenance and utilities, some of these items can be itemized as deductible expenses on your yearly income tax return.
When researching areas of interest, budget, and listings, consider the following important questions, and pros and cons:
Prior to researching vacation home destinations and listings, it’s best to decide how much you can afford, what you can put down, and financing options.
Purchasing a second home or investment property can provide myriad benefits, such as the financial freedom to pursue other interests. While the terms and requirements are different, you can still acquire a competitive secondary mortgage by working with the right lender, such as Contour Mortgage.
Contour Mortgage can assist with financing a cabin, lake house, or second home for weekend getaways or family vacations. Contact us for a free consultation and quote.