Vacation Home Mortgage
in California

Vacation home loans finance secondary properties where the borrower does not live full-time. They usually require a higher credit score and down payment than primary residence mortgages. Additionally, they might have higher interest rates since these properties carry greater risk for lenders due to potential vacancies and unpredictable rental income.

Most lenders prefer a minimum score of 680 to provide favorable or average interest rates on a vacation home loan. A few might consider going down as low as 620; however, the terms will not be favorable, and the interest rates will be much higher. Therefore, try to improve your score to get better terms at the time of application.

Lenders typically require a minimum down payment of 10% to 20% for vacation homes. The better the interest rates, the larger the down payment required. For that reason, planning at least 20% can help reduce overall borrowing costs.

Yes, many vacation homebuyers rent their vacation homes out to help defray the cost of the mortgage. Most lenders have some restrictions, such as the owner has to occupy the house a certain number of days per year. Ensure your loan terms allow renting, and check in with local regulations regarding short-term rentals.

Personal use refers to a vacation home, even though that might sometimes be rented. An investment property has been purchased to earn rental income or sell to obtain profits. Lenders consider investment properties riskier and take higher down payments with more rigid lending standards than vacation homes.

The challenges are: higher down payments, very strict credit score criteria, and formidable financial reserves. To increase the possibility of securing loans:

• Save for a higher down payment to obtain better rates.
• Pay down debt and clean up errors on your credit report to further improve your credit score.
• Keep your income stable, with enough savings to show your ability to handle more than one mortgage.

Refinancing your primary residence to pull out equity can provide the funds for a vacation home purchase. However, this raises your overall debt burden, so make sure you can handle both mortgage payments comfortably. You may want to discuss with a mortgage broker or a financial advisor how refinancing will affect your situation.

Begin by thoroughly assessing your budget, considering both the upfront costs (down payment, closing costs, inspections) and ongoing expenses (maintenance, insurance, property taxes). If you plan to rent it out, research local regulations and market demand. Work with a mortgage broker to evaluate different loan options and ensure your finances align with the additional mortgage commitment.