Vacation Home Mortgage Loans

If you thought getting a mortgage for a primary residence was difficult, it can be even more challenging to obtain one for a vacation home. To you, a second home conjures up images of vacation fun and

relaxation, but lenders see only risk. They assume that vacation-home buyers are extending themselves financially, making them more likely to default on the loan. Read more about Choosing a Mortgage Loan.

And that risk is passed on to borrowers in the form of higher interest rates — as much as 0.5 percent higher than primary-residence mortgages. Mortgage insurance rates will also be higher, and you will have to prove that you have more available cash on hand. For example, if you are expected to have two or three months in mortgage payments available in cash for a primary residence, you'll likely need five or six months of available cash for a vacation home.

Loan amounts will also reflect the higher risk taken by the lender. While banks and brokers routinely issue first-home mortgages with just five percent down, lenders will likely require 10 to 20 percent down for a vacation-home loan. If you're planning to rent out the property, that will further increase the risk to the lender, which will probably result in an even higher down payment.