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Financing Your Vacation Home

Vacation home sales jumped 50% from 2013 to 2014 and that trend is expected to continue in 2015 according to the National Association of Realtors.  Factors in this jump include an improving economy and the generation of baby boomers looking to buy second homes where they will eventually retire.

A year ago, many lenders were asking for a 30% down payment for second home mortgages, but now many are asking 20-25% to attract more buyers.  Interest rates are usually higher for second home mortgages, but now some lenders are also offering the same rates for second homes as they are for first home mortgages up to a certain amount. 

However, credit score requirements are much stricter with second home mortgages.  Many lenders require a higher credit score for a second home mortgage, but will decrease that requirement in exchange for an increased down payment. 

Interest rates on second-home mortgages are usually tax-deductible up to the first $1 million.  If interest rates on your second home mortgage are higher than on the first, it may be in your best interest to prioritize those payments on your tax returns.

Just like your first home, your second home has expenses beyond the purchase price.  This home also requires furniture, landscaping, routine maintenance, and other various expenses.  It is important to consider these additional costs when considering buying a second home.

If you are thinking about renting your second home, discuss your lender’s requirements.  Lenders differ on how many days a home has to be rented in order for it to be considered an investment property.  Taxes for are higher for those types of properties than for regular homes.