Vacation Home Loans

What Are Vacation Home Loans?

Vacation home loans are specialized mortgage products designed specifically for purchasing second properties that aren’t your primary residence. Unlike standard home loans, these financing options accommodate the unique circumstances of buying a property you’ll use periodically throughout the year.

Loans for vacation homes typically finance properties that:

• You’ll occupy for vacations, weekend getaways, or seasonal living.
• May generate occasional rental income when you’re not using it.
• Serve as a future retirement destination.
• Enhance your lifestyle and serve as a potential investment.

Mortgages for Vacation Homes vs Primary Residences

Lenders view vacation property loans differently from primary home mortgages because they’re discretionary purchases, not necessities. Since homeowners tend to prioritize their main residence during financial hardships, lenders adjust their terms accordingly. Here are a few ways mortgages for vacation homes differ from primary residence loans:

• Higher interest rates: Vacation home loans typically come with slightly higher interest rates than your primary mortgage. Lenders see these home loans as riskier than primary residence loans because you’re more likely to stop payments on a vacation property than your main home.
• Larger down payment requirements: While primary homes might qualify with as little as 3-5% down, vacation properties typically require a 10-20% minimum down payment. This larger equity cushion protects lenders if you default, as vacation properties can sometimes be harder to sell quickly.
• Stricter credit requirements: Vacation home loans have more demanding requirements across the board. You’ll need a higher credit score, larger down payment, and lower debt-to-income (DTI) ratio than what’s typically accepted for primary residences. Vacation home mortgage lenders may also require more substantial cash reserves and conduct more thorough income verification. These tighter standards exist because vacation properties are considered luxury purchases, so lenders need extra assurances that you’re financially stable enough to maintain payments on multiple properties long-term.

Vacation Home Loan Options

Exploring the right vacation home loan options means finding the perfect balance between competitive terms and qualification flexibility. Here are the primary types of loans you can use for a vacation home:

Conventional loans

Conventional loans are the most common and straightforward option for vacation home loans. A conventional loan comes with competitive interest rates for qualified borrowers, with down payment requirements starting at 10-15% for vacation homes.

Conventional loans work best for borrowers who want predictable payment terms and have strong credit, documented W-2 income, and sufficient down payment funds.

Home equity loans

If you’ve built substantial equity in your primary residence, a home equity loan offers an alternative path to vacation home ownership. These loans potentially offer lower interest rates than a new mortgage, with a simplified qualification process.

This approach essentially leverages your primary home’s value to invest in your vacation property, potentially creating favorable terms.

Non-QM Vacation Home Financing Options

As an alternative to traditional financing methods, consider exploring non-QM loan options, which offer more flexible qualification requirements and loan terms.

Non-QM loans

For entrepreneurs, business owners, or those with complex financial situations, non-QM loans provide creative alternatives for those who don’t qualify for a conventional vacation home loan.

With bank statement loans, you can qualify based on deposits rather than tax returns, making them ideal for self-employed borrowers who maximize deductions. Meanwhile, asset-based loans let you qualify with liquid assets rather than income.

These vacation home loans help overcome documentation hurdles that often frustrate borrowers with non-traditional income sources.

Jumbo loans

Jumbo loans are specifically designed for high-value properties in desirable vacation markets like coastal beach towns, mountain ski resorts, and exclusive lake communities where property values frequently exceed standard loan limits.

Jumbo loans typically require stronger financial credentials, including excellent credit scores and significant down payments, but can offer surprisingly competitive rates for well-qualified borrowers.

The benefit of jumbo financing is that it allows you to purchase a premium vacation property without compromising location or amenities while maintaining a financing structure that works for you.

Who Qualifies for a Vacation Home Loan?

Vacation loans are more challenging to qualify for than primary home mortgages; you’ll need to meet notably higher standards, including:

• Financial profile: You’ll need a strong credit score (typically 680+), a manageable debt-to-income ratio (usually below 43-45%), a substantial down payment, and several months of cash reserves.
• Income verification: Expect to provide thorough documentation of steady, reliable income. Self-employed borrowers may face additional scrutiny and may need at least two years of business income history.
• Property considerations: The vacation home must be suitable for year-round occupancy, in reasonably good condition, and located in an area with solid resale potential. Some lenders may also have location requirements regarding the distance from your primary residence.
• Intended use: Lenders will confirm that you’ll use the property yourself at least part of the year. If you plan to rent it occasionally, you’ll need to disclose this, though you should look into investment property loan options if you plan on renting out your second home.

How to Get a Vacation Home Loan

Getting a vacation home loan is similar to getting your primary mortgage. The main difference is that you’ll need to meet stricter qualification criteria from your lender. Here’s how to get a vacation home loan:

1. Assess your budget and financial profile: Beyond the mortgage payment, factor in property taxes, insurance, maintenance, and HOA fees. In the months before applying for the vacation home loan, improve your credit score, reduce existing debt, and organize documentation of your income and assets for a smoother approval process.
2. Research loan options: Compare conventional, jumbo, and non-QM options to identify which best fits your financial situation and needs.
3. Secure a pre-approval: Work with a lender to understand exactly what you qualify for before shopping.
4. Begin your property search: Look for vacation properties that meet your lifestyle and lender requirements. Consider location, property condition, seasonal access, and proximity to amenities that enhance your enjoyment and maintain resale value.
5. Complete the application process: Submit your full loan application. Be prepared for a thorough underwriting process that will scrutinize your finances more closely than with a primary residence. Underwriters will verify your income, assets, employment, credit history, and property details.
6. Close on your vacation home: After underwriting approval, you’ll proceed to closing. Review all documents carefully, as terms for vacation properties may differ from what you experienced with your primary home. Once paperwork is complete and funds are transferred, you’ll receive the keys to your new vacation property.

Tools like the Griffin Gold app can simplify tracking your application progress and organizing necessary documentation.

Explore Vacation Home Financing Options

Your ideal vacation property is within reach with the right vacation home financing. Griffin Funding helps borrowers find vacation home loans every day, with options tailored to various financial situations and property types.

We can help you explore loans for second homes that make sense for your specific needs. Get started online or contact us today to discuss your vacation home financing options.