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October 20, 2014

Vacation-Home Buyers Face Financing Hurdles

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Vacation-Home Buyers Face Financing Hurdles

Qualifying for a loan isn’t easy for most borrowers nowadays, but it’s particularly difficult for vacation-home buyers, who are finding tougher underwriting requirements and other obstacles. 

“Many popular vacation-home destinations are in the same markets where property values tanked during the housing downturn and have yet to stabilize,” MarketWatch reports. “Some lenders say they’re concerned about underwriting mortgages in areas where prices could fall further. In other cases, lenders won’t approve mortgages if they receive a shaky appraisal report — for instance, one that includes sale prices from other towns when there’s a lack of comparable transactions in the neighborhood the applicant is buying into.”

Lenders also weigh the financial health of the homeowner’s association where the home is, and they also may be more apt to deny a person a loan if many existing owners in the neighborhood are behind on their dues or if there are several homes that are unsold in the area — even if the borrower has stellar credit, according to reports. 

Lenders are less willing to provide private jumbo mortgages — which are loans above $417,000 in many parts of the country — on vacation homes, according to the MarketWatch article. Lenders are also being more strict with vacation-home buyers, passing on higher mortgage rates — perhaps a quarter of a percentage point higher — to these borrowers compared to those applying for a loan to buy a primary residence. Also, lenders may require larger down payments than they would on a primary residence. In some cases, that can range from 30 percent to 60 percent.

But with prices in many markets still at affordable levels and mortgage rates so low, buyer demand is up for vacation properties. More buyers are bringing cash to the deal to avoid mortgage obstacles. 

Source: “Getting a Vacation-Home Loan: No Day at the Beach,” MarketWatch (Feb. 8, 2013)