Buying a second home is a dream for many people. Once you’re in a position to make this purchase, you must handle it correctly. The process is similar to the purchase of a primary residence; there are some other things to think about.
One of the most important considerations is what classification you’ll have for that second home. This classification may determine what type, if any, of loans you can get for the property.
What classifications are possible for a vacation home?
Vacation homes are either classified as second homes or investment properties. Specific points must be met for the home to be classified as a second home for mortgage purposes.
- The dwelling can work as a home and is only one unit.
- You must spend at least part of the year in the home and keep it for at least half the year.
- You can’t use a property management company for the home, even if you use it for short-term rentals.
- It must be a reasonable distance from your primary dwelling.
The other option is an investment property. This is for vacation homes that don’t meet the requirements for the second home. It’s often difficult to get a loan for these because lenders consider investment properties to be a higher risk than primary homes.
What else is different with a vacation home purchase?
You can’t ever count on a VA or FHA loan for any home that isn’t your primary residence. If you’re able to obtain a different type of loan, you’re going to have a much more difficult time with underwriting. You may need a larger down payment. Some lenders want a higher credit score than a primary residence. They will also enjoy a lower debt-to-income ratio.
There are other expenses to think about. These include insurance, which might be higher than usual because it’s not an owner-occupied home. Taxes, maintenance, furnishings, and utilities are added costs that come with having another residence.
You must ensure you protect yourself throughout the purchase process. Working with someone familiar with residential real estate transactions in Illinois can help you as you move through the purchase.