Across the country, the heat is rising. And we don’t mean just because it’s summer! The vacation home market is booming with new life, and resort towns all over the U.S. are enjoying the spoils of this market upturn.
NAR Report on Vacation Home Sales
According to an April 2014 report from the National Association of Realtors, annual sales of vacation homes jumped nearly 30 percent to a little more than 717,000 homes. Vacation home sales represented 13 percent of the total housing market, their highest share since 2006.
While the rate of vacation home purchases was on the rise in 2013, the rate of investment homes fell 8.5 percent to an estimated 1.1 million in 2013. That’s down from the 1.21 million investment homes purchased in 2012.
“Lifestyle factors, with regard to vacation and retirement, remain the primary motivation for most second-home buyers,” states Julie C. Nichols, Vice President of Sales with Guardian Mortgage. “When it comes to investors, however, rental income is the driving force behind location and size selection of homes.”
Location! Location! Location!
As with most real estate, success in the vacation and second home market is driven, in part, by location. Many of the nation’s most popular and more expensive destination towns that have been struggling for the past six years are once again bursting with tourist activity and high-end home sales.
Scottsdale, Arizona and Taos, New Mexico are topping the charts as two of the most popular luxury vacation home destinations. Both offer the flexibility of snow and water activities, as well as high-end retail and spa amenities.
Of vacation homes purchased last year, 40 percent were in the South, 28 percent in the West, 18 percent in the Northeast, and 14 percent in the Midwest.
With the combination of natural beauty and luxurious conveniences, vacation and retirement home sales in New Mexico, Colorado, Florida and Arizona continue to be the hot spots of real estate activity.
Second Home Mortgage Loan Know-How
Qualifying for a mortgage on a vacation or second home is relatively similar to financing your primary home purchase. One of the biggest differences in the process is typically seen around the down payment aspect. Vacation-home buyers typically made 30 percent down payments on average in 2013 versus the now standard 20 percent on standard home mortgage loans, according to the National Association of Realtors.
With the passing of new home mortgage lending regulations in January 2014, lenders now review a borrower’s entire financial picture prior to making a lending decision, which has been seen as invasive and excessive in the eyes of many consumers. In addition to the change in down payments, the new provisions require that a borrower’s total debt payment cannot exceed 43 percent of their pretax income.
To assist with the qualification for a second home loan under the new regulations, many lenders are guiding their potential homebuyers to consider making a down payment larger than 20 percent. This typically drops the monthly payment considerably and allows for many second-home buyers to qualify.
When considering a second home mortgage, prepare by reviewing your credit history, calculating your debt-to-income ratio, and use online mortgage calculator tools to assist you in finding out what you’ll qualify for before you speak with a Mortgage Loan Officer. Guardian’s experienced Mortgage Loan Officers can walk you through this process and answer all of your questions about second home loans.
Marcus McCue |
EVP & CBDO