Buying a Vacation Home – a Good Decision for First-Time Home Buyers

How To Buy A Home When The Price Is Out Of Your Town

Everyone is buzzing about a “The boom in home buying for millennia. ”

But in some cities, especially where young professionals move, housing prices make this almost impossible.

You can either compromise on location (by buying out of town) or go over budget and nearly double your monthly housing payment.

Obviously, neither of the two options is good.

But there are other ways for low cost buyers to invest in real estate.

An option ? Continue to rent and buy a vacation home rather. You could build equity, continue to live in the city you love, and earn money from tenants.

It sounds good ? Check out your vacation home financing options today.

Find an Affordable Mortgage for a Vacation Home Here (July 17, 2021)

In this article:

Video: The Smart Strategy Millennials Use to Buy Homes

Why first-time homebuyers choose vacation homes

Buying a vacation home as your first property can come with huge benefits.

  • Start building equity in an area where real estate values ​​are likely to increase
  • Earn money next door, if you rent the property
  • Take a vacation! Without having to pay for a hotel or Airbnb

First of all, you have a permanent place to get away from it all. Whether in the mountains, at the beach, or just in a sleepy town along the coast, it offers you a place to kick back and relax anytime you want.

More than that, however, it also gives you an additional source of income.

When you’re not actively using it, you can rent out your home on platforms like Airbnb and VRBO and earn extra cash.

If the home is in a neighborhood in demand, the rent you earn might even pay your mortgage payment (and maybe your current rent as well).

This strategy is best for buyers located in high cost housing markets, where purchasing a primary residence is simply not possible. You can build wealth through real estate, without having to exhaust your budget or move out of town.

As with any real estate purchase, buying a vacation home also gives you the opportunity to build up equity, which ultimately means profits when you sell.

And since you’re still renting, you don’t have to compromise on location to do so.

Continue to live, work and play in the city you are used to and let your vacation property create the wealth for you.

Want to see if you could afford a vacation home as your first home? Explore your financing options using the link below.

Check your eligibility to buy a home (July 17, 2021)

Where to invest in vacation real estate

The more expensive real estate markets are the best choices for this type of real estate strategy. These include cities like Los Angeles, San Francisco, Seattle, Denver, New York, and Washington, DC

When choosing a property, you’ll want to explore vacation spots in the surrounding area. Look for places that you can easily access 1) visit the house and vacation yourself and 2) maintain the property regularly.

Here are some great vacation real estate options near the country’s most expensive markets:

  • Bay area – Monterey, Carmel, Lake Tahoe, Napa
  • Los Angeles – Palm Springs, Joshua Tree, Santa Barbara
  • Seattle – Leavenworth, Bellingham, Snoqualmie
  • Denver – Steamboat Springs, Aspen, Fort Collins
  • Washington DC. – Ocean City, Alexandria, Gettysburg
  • new York – Montauk, Catskills, Cape Cod

Real estate prices should also be taken into account. And you should also consider your tastes and interests.

Where would you most like to go on vacation? What about your family members? Keep in mind that you will probably be visiting at least a few times a year, so make sure this is a place that you really like.

How to buy a vacation home

Buying a vacation home is similar to buying a primary residence (the one in which you plan to live full time). But there are a few key differences.

First, you will have more limited loan options.

FHA loans, for example, are not available for vacation home purchases. You will therefore have to use a conventional loan instead. These are a bit more difficult to qualify as they require higher credit scores.

You may also be required to have at least a few months of cash reserves.

Expect tougher credit and income hurdles when buying a vacation home. And keep in mind that vacation home interest rates are slightly higher than typical mortgage rates.

In addition, interest rates are generally higher on holiday home shopping than they are for first mortgages.

Fortunately, they are still lower than rate on investment real estate loans, which tend to be significantly higher than market rates.

How to get low mortgage rates for a vacation home

It is important to note here that you must also use the property for your personal vacation at least part of the year.

If you rent the house 100 percent of the time, then you have investment property in your hands. It requires a different (and more expensive) mortgage.

Telling a lender that you are buying a vacation home when it is actually an investment property is considered mortgage fraud and may result in jail time.

Find a low mortgage rate for a vacation home (July 17, 2021)

Make the math work

To make buying a vacation home worthwhile, all you need to do is offset your mortgage payment with the rent you earn on the property.

Here is an example.

Let’s say you buy a house in Joshua Tree for $ 400,000. Your monthly mortgage payment is $ 2,000.

By listing the house on Airbnb, you can earn $ 200 a night. With these returns, it only takes 10 tenant days per month to cover your mortgage payment.

If you’re not able to fully pay your mortgage with the rent, that’s okay either.

In the example above, if you only rented the house for eight nights, you would earn $ 1,600. That leaves you with only $ 400 to pay on your monthly mortgage payment.

Find out what your monthly mortgage payment would be. Start here (July 17, 2021)

A few hundred dollars a month can seem like a lot if you are on a budget. But remember:

  1. You build equity by owning the home
  2. You get homeowner deductions that lower your annual tax payable
  3. You have a vacation property that you can use whenever you want

Plus, hotels in vacation hot spots can cost a pretty dime. Just two nights’ accommodation could easily exceed the $ 400 mark (and that would probably be less comfortable, too).

As long as you use your vacation home a few times a year, you’ll likely end up saving money on hotel costs in the long run.

What to consider before buying a vacation home as your first home

Of course, buying a vacation home is not something you have to jump into blindly. There are many factors to consider including your budget, schedule, location, etc.

You should also be prepared to take care of the property.

You’ll need to maintain it and make repairs (you want to protect that investment!), But you’ll also need to take care of cleaning and restocking after each tenant.

You can hire a property management company to do these things. But be sure to budget for this up front.

Finally, you should have some savings in reserve. There will be times when you won’t have tenants (especially if the property is only in seasonal demand), and you may need to cover all of your mortgage costs and upkeep on your own. your property.

Make sure you have a financial safety net to cushion the blow if this happens.

Vacation Home Mortgage FAQs for First-Time Home Buyers

What are the mortgage rates for vacation homes?

Vacation home mortgage reat are slightly higher than the rates you would see on a primary residence loan. Fortunately, they are still lower than interest rate on investment real estate loans. The rates for investment loans tend to be much higher than other mortgages because they present a higher risk to the lender.

How Much Should I Put on a Vacation Home?

You will need a deposit of at least 10% to purchase a vacation home. And that’s with great credit and serious cash reserves. If your claim isn’t as strong, your lender will likely want a 20 percent down payment to protect them in the event of a loss.

Should I notify my mortgage company if I rent my vacation home?

Probably not, but you’ll want to check your mortgage documents to make sure. As long as you still use the home as your personal vacation home (in addition to renting it out), you should still be in compliance with your contract. If you are not sure, call your lender and ask.

Can I buy a house and rent it immediately?

Yes. As long as your mortgage is not for a primary residence, there is no requirement that you move in or live in the house yourself right away. You cannot hire it full time.

Can I rent a room in my house with a normal mortgage?

You should be able to rent a room under any traditional mortgage contract. However, if you want to rent the whole house (even part-time) this might not be allowed. With VA loans and FHA Loans, for example, the property is to be used as a primary residence. The rental would be contrary to the requirement.

Vacation homes: a niche for tenants to break into the housing market

If you are wondering how you can afford a home in your town, buying a vacation home may be the right decision. It can help you build wealth, provide you with an additional source of income, and provide you with your own personal getaway when you need it.

Are you planning to buy a vacation home? Then shop around and see what mortgage rates you qualify for today.

Check your new rate (Jul 17, 2021)

About Joan Dow

Check Also

How to protect your financial information

Data breaches hit an all-time high last year, which means the risk of having your …