You’ve spotted a cozy bungalow for sale near your favorite beach resort and suddenly it hits you- if you could get a mortgage, then you’d be able to claim the place for yourself! However, it’s important to note that a mortgage for your vacation home may work light years differently from the mortgage you acquired for your primary residence.
While this path may sound enticing from the get-go, you should know which mortgage approval process will be easier. Here’s what to consider:
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Your Primary Home vs Your Vacation Home Mortgage: The Key Differences
A second home is always a great investment. It allows you to cut down on hotel costs and offers you a vacation spot that you have total control over. Ultimately, this means that you won’t have to pay as much when you set off on a vacation. But before jumping in and obtaining a mortgage on this great purchase, here’s what you need to know:
- Your credit score:
The credit score requirement needed for the purchase of your vacation home is slightly higher than what was needed for your primary home. The minimum score is 640 while primary home purchase mortgages come at a 25% lesser figure. You’ll have to part with a higher credit score for your vacation home because you may already be servicing another mortgage in relation to your primary residence. Therefore, it’s essential to show that you can service both mortgages.
- The total costs
Your capacity, credit score, and collateral could afford you a mortgage on your primary home. A standard method of evaluation is often used to determine this. However, a vacation home will pose two challenges- where total costs are concerned; affording to maintain and manage a vacation home will not automatically qualify you for a mortgage.
Underwriters will look at all the expenses including the principal, interest, insurance, and property taxes if applicable. If everything checks out, then they’ll approve the mortgage. Along with these, there could also be different rules and laws for estate expenses and fees.
- The down payment requirements
Where you can buy your primary home with a three percent down payment, you’ll need a ten percent down payment for your vacation home, and this is if you have a very strong application, otherwise, most lenders recommend a twenty percent down payment.
This is because mortgage lenders take on more risk with vacation homes. In comparison to your primary residence, these homes may be rented out to tourists who may not have the urge to keep them in pristine conditions. Also. the location of the vacation home, could mean natural disasters as a liability.
The Final Verdict
The answer is YES- obtaining mortgage approval for a primary home is easier than a vacation home..Primary residence mortgages offer the lowest rates and require lesser details in comparison to vacation home mortgages. Lenders also believe that homeowners are more likely to stay on top of payments to ensure they have a roof over their heads.
Thinking of securing a mortgage, then Altrual Financial professionals will give you all the information you need on the process. We are determined to lower your rate and help make your approval a breeze!