The winter chill is in the air and snow is falling on the slopes of Aspen. If you are dreaming of your own vacation home in the snow filled mountains, retreat on Lake Tahoe, or villa in Palm Springs, now is an excellent time to purchase a second home. Vacation homes are an excellent way for you to get away and relax with family and friends. Leaving the hustle and bustle of everyday life behind, a vacation home can help you to unwind in peace and quiet or engage in your favorite hobbies.
Now is a fantastic time to purchase because buyers tend to stop shopping for homes around the holidays. This gives you more options when negotiating price. Before you call your realtor speak with your mortgage lender to find out what you qualify for. They will pre-qualify you so that you can shop for a home with confidence in your ability to get a mortgage loan.
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Qualifying for a Second Home
The underwriting process for your home loan will be similar to when you bought your primary residence. Your mortgage banker will need to review:
• Two recent pay stubs
• Two years W-2s
• Recent bank statements (to show payment reserves)
• Tax returns if you are self-employed or collect income from a rental property
The mortgage lender will factor in the payment for your primary residence and your vacation home when coming up with your debt to income ratio (DTI). Your DTI will typically need to be lower than 45% in order to qualify, while each lender may have a different requirement.
Down Payment
There are no zero down loan programs for a second home. Mortgage bankers typically require a 20 – 30% down payment in order to close the loan.
Appraisal and Inspection
Your new home will need to be appraised. It is also recommended that you hire a home inspector to give you a full report prior to closing on your purchase. Since the home will be located at least a few hours from your current home, it will be harder to complete repairs or stay on top of any damage that has occurred. Start on the right foot by making sure repairs are done prior to closing. You can request this in and addendum to your purchase and sale agreement.
Closing Process
Once the underwriter approves all of the income and asset information you sent, along with the appraisal, they will prepare loan documents for you to sign. Each state has different requirements for how a property should be titled. With this in mind your mortgage lender will probably work with a national title and escrow company to facilitate closing.
Loan Payments
Make sure your mortgage lender knows to send your loan statements to your primary residence. This way you can stay on top of your mortgage loan payments.
Mortgage interest rates are low, making this an excellent time to purchase a second home. Call us today to find out how much you qualify for and to learn what type of mortgage payment you can expect on a monthly basis.
