Welcome to our fourth episode of The Knowledge Broker by Chisum Realty Group. In this episode, we’ll be discussing vacation home lending and some differences between a second home and investment property. Is you have any questions about this topic or have suggestions for future topics, please comment below. Thanks for watching!
Welcome to The Knowledge Broker, I’m Tara Chisum. We’re back with our trusted lender, Floyd Magee to talk about different loan types available for vacation home buyers.
Thank you for being here.
Thanks for having me again.
So Floyd as you know, most of the buyers that we work with in the Enchanted Circle are vacation home buyers.
Can you tell us a little bit about how a vacation home loan differs from a primary home?
Sure, so a vacation home loan, the only real difference is the down payment. They need 10% down, typically to do that. Most of them are going to be a conventional loan since it’s not a primary occupancy loan. So it’s going to be conventional, with 10% down, the rate is usually about eighth higher than a primary. So not a big bump in the rate. In terms of the underwriting guidelines, the lender is going to look for some liquidity, make sure that now that we’re adding another mortgage payment, potentially to their debt, that the borrower can handle that. That they have some reserves in their account, 3-6 months depending. And the rest of its the same as a primary, you know, good job history, good credit, those kinds of things. Credit score for a second home, vacation home buyer, is a, since they’re going to go conventional, typically a little higher than on a primary, where’s they’re lots of options. So, a little bit stricter guidelines, but it’s really not that different.
Okay, great, and many of our vacation home buyers want to rent their property, you know VRBO and AirBnB, does this affect their loan type in any way?
So as long as they’re going to occupy it part of the year, that’s Fannie Mae’s rules that you’re going to occupy it part of the year, it’s a second home or vacation home. They can still rent it out, short term, as long as they don’t belong to a rental pool that limits their use of it, where they don’t have control over it anymore, then it’s still a second home. If they’re going to buy and stractly rent it out 100% of the time and never occupy it, then it becomes a rental, investment property with 20% down restrictions or 25% down.
Excellent, thank you for sharing. We see a lot of misinformation out there about vacation home vs investment property when it comes to the loan. Thank you for sharing your knowledge.
If you have questions or topics you’d like for us to cover in the future, please comment below and we’ll see you next time on The Knowledge Broker.