There is loan money available for second-home purchases, but expect bigger down payments, higher interest rates and other standards tighter than on a principal residence — and those standards are tight already. In addition, there are quirks specific to vacation markets.
Vacation-home purchases accounted for 10 percent of home sales last year, according to a National Association of Realtors survey released this spring. Investment purchases accounted for 17 percent — but sometimes the line between the two is a bit blurry. That’s down sharply from the height of the real estate boom in 2005, when vacation and investment sales accounted for 40 percent combined.
Then, “there was virtually no difference in underwriting for vacation homes versus owner-occupied homes,” said Guy Cecala, the publisher of Inside Mortgage Finance. “That’s something that’s changed dramatically. The days of being able to buy a vacation home with little or no money down are over.”
Loans insured by the Federal Housing Administration with down payments of as little as 3.5 percent aren’t available to vacation-home buyers. That means 20 percent for deals that meet stringent requirements of Fannie Mae and Freddie Mac. For loans that don’t fit — for instance, that are bigger than the government ceilings, which vary by county — down payments can be higher. Kevin Santacroce, an executive vice president and the chief lending officer of Bridgehampton National Bank on Long Island, said that for the jumbo loans his bank writes, down payments are “closer to 25 percent, maybe 30 percent.” In Suffolk County, a jumbo loan is more than $729,750, among the nation’s highest. (As Mr. Santacroce points out, that’s the loan amount, not the purchase amount; still, it’s a rare house in the Hamptons that would fall into the non-jumbo category.)
Thirty percent also seems to be the “comfort zone” this year for down payments in the Jersey Shore towns where Michael Loundy, a broker at Seaside Realty, works. “You can get 20 percent down,” he said, “but the buyer has to look very strong with income-debt ratios.”
Pinning down the details of a loan is challenging, Mr. Loundy said. For instance, during the loan approval process, exact terms may shift — a rate can go up one-eighth or one-quarter of a percentage point for any deal that isn’t exactly “pristine,” he says — and pristine means a free-standing single-family house instead of a condo, a credit score of 725 or more, and full documentation of income.
Even when all else is equal, a vacation-home loan is pricier. Mr. Cecala just refinanced his own primary and secondary homes on the same day, and the interest on the vacation place was one-quarter percentage point higher.
Some vacation areas offer distinct challenges. David Knudsen of Catskills Buyer Agency in Sullivan County says appraisals can be dicey in an area like his, because big banks may, for instance, require that sales be in the same school district to be comparable — which is not so easy with tiny school districts and spread-out sales. Local banks, he said, are better able to assess the worth of, say, a house on one lake versus one on another.
Banks aren’t the only places to get financing. Some sellers will carry loans. “That’s a question some buyers forget to ask sellers,” Mr. Loundy said. “Not everybody is in trouble.”
And what about cash, after all? Vacation-home buyers tend to be older and more affluent than other buyers, so all-cash deals are common. According to the Realtors’ survey, 36 percent paid cash, as did 59 percent of investment buyers.
Mr. Knudsen said that half his sales in the last year were all cash. These buyers don’t need to have appraisals; they can close in 30 days instead of 60 or more; and they can consider houses in less-than-perfect physical condition, like foreclosures.
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