As summer draws to a close, you may be reflecting on your favorite vacation moments, or better yet, already planning some new ones. Last year, nearly 1 million people decided to start making memories at their own vacation property. And, at least 25% of all vacation property owners have decided to make some money in the process by renting out their properties during part of the year. If you’re thinking of doing the same, it’s worth learning about your what your best option might be for financing this project. It could be a loan, line of credit, or a mortgage for vacation rental property.
A Conventional Mortgage Review
A conventional mortgage on a vacation property usually requires 10-20% down. It often, but not always, has higher interest rates. Additionally, the government does not back loans on second residences, so you’ll be limited to private lenders. Lastly, if you intend to make your new home a vacation rental property for more than 14 days per year, you’ll have to provide information about your debt-to-income ratio. There can be a lot of red tape involved in applying for a conventional mortgage for vacation rental property. Luckily, there are other options available.
Alternatives to a Mortgage for Your Vacation Rental Property
Pay Cash – An ideal option if you have the money saved up specifically for this purchase. Otherwise, spending a large amount of money up front can put you in a bind when it comes to your liquidity.
Home Equity Line of Credit (HELOC) – Using a HELOC means that you can utilize your equity in your primary residence to get a line of credit that you can spend on your vacation rental property.
Cash-out Refinancing – In this option, you can use the equity from your primary residence to refinance for a larger loan. Then, the additional money can be used for a down payment on your vacation rental property.
Rental Loan – Using a rental loan allows you to get a loan-to-value of up to 80% for a single-family home with up to 4 units. This option is great if you don’t want to change your primary residence financing and want a hassle-free loan application process.
Working with Brass Financial Group
If you’re ready to plan your next vacation and your next real estate investment at the same time, Brass Financial Group is here to help. Call us at 609-800-FUND to speak with a loan officer or contact us today.