Mortgage Refinances for Vacation Homes
By: Rosemary Rugnetta | August 30th, 2012
Prior to 2006, the housing boom led many consumers to purchase vacation homes, also known as second homes. Many used the equity that was available in their primary residence for the down payment on a vacation home. With low mortgage rates available today, mortgage refinances for vacation homes may be something that is wanted by these borrowers, although this may be more difficult to obtain than a regular refinance.
Vacation homes are often considered risky by many lenders. Especially in today’s market, is believed that if a borrowers runs into financial difficulty, borrowers will concentrate on saving their primary residence instead of the second home which they only use for vacation. In addition, an empty second home can become a maintenance issue which can eventually affect the home’s value. If the property was to foreclose, it would be a higher expense for the lender if it was in need of repairs.
Due to these concerns, lenders may charge higher mortgage interest rates today when refinancing a vacation home. Back during the housing boom, many second homes carried the same mortgage rates as primary residences. Besides mortgage rates, lenders might look for lower loan to values, such as 85% or 90% for conforming mortgages. It is not unusual for borrowers to need additional months of reserves with a vacation home mortgage refinance.
When a vacation home is rented, it is considered an investment property which has even stricter guidelines. The mortgage rates offered are generally higher and additional months of reserves are normally required to cover any loss of monthly rental income. According to CoreLogic, a real estate data and analytics company, the foreclosure rate on investment properties ran about 1 1/2 times higher than on true second homes during the past year. Lenders, as well as, Fannie Mae and Freddie Mac, all have different guidelines and restrictions when it comes to what is considered investment homes.
While mortgage refinances for vacation homes would be a smart financial move for many second homeowners, these borrowers need to do their homework in order to obtain a good deal out there. Most lenders offer vacation home financing, but restrictions, guidelines and mortgage rates will vary. The easiest way to obtain a vacation home mortgage refinance is by completing the online form which does not require a social security number. Upon submissions, a response will be received almost instantly providing the borrower with more information.
FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.
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