Getting a Loan for Your Second Home - WCAX.COM Local Vermont News, Weather and Sports-

Getting a Loan for Your Second Home

Mortgage lenders make no bones about it: They are tougher on second-home loan applications than on primary-home loans. Why? Because the finances of a second-home buyer are, by definition, stretched thinner. The result is that second-home rates traditionally run one-quarter to one-half point higher than those for first residences. Ditto for origination points on vacation-home loans.

That said, however, the current environment for second-home lending is about as lenient as it has been in years. Banks are healthy again and a rebounding real estate market has them all rushing into the market at once. The result: heightened competition -- especially in the second-home arena. "The typical profile of a second-home owner is someone more affluent than a single-home buyer," says David Totaro, chief marketing officer for Dime Savings Bank of New York. "That's the type of person we want to do business with."

Using a Home-Equity Loan
With interest rates still at relatively low levels, many lenders will encourage you to take out a home-equity line of credit on your primary residence to fund all or part of your second-home purchase. Watch your step here. Most home-equity lines of credit float a point or two higher than the prime rate, so you could end up repaying this piece at a much higher interest rate than if you had simply taken a mortgage for the entire amount. Plus, unlike mortgage interest, which is deductible on up to $1 million of debt on your first and second homes combined, the home-equity cap is $100,000. (You get a break on $1.1 million total.)

Whatever you do, don't bank on starting with a home-equity loan and taking out a mortgage at a later date. A little-known IRS rule states that you have just 90 days from purchase to secure a mortgage against a principal or vacation residence, notes New York CPA Paul Kamke. Do it later and you can't deduct it at all.

Landlording and Mortgages
Lenders are still sticky when it comes to renting out your second home. Some lenders won't even write those kinds of loans; they have a hard time selling mortgages on investment property in the secondary market. If you find a lender that will, expect it to scrutinize you more carefully than if you were not a landlord.

At a minimum it will want to see proof that you're actually going to generate a decent cash flow. Often, the lender will ask for a cash flow statement for a property showing its rental history. In condo communities, management companies often provide them. If one isn't available, you'll need to get a second appraisal, comparing the rents and occupancy rates at similar homes. This will run an extra $300 to $600.

And don't count on your bank to take all of a home's estimated rental income into consideration. Even for a property with a long rental history, most lenders will only consider 75% to 80% of it. Some even take 75% after netting out your costs.

If you don't need the rental income to meet the mortgage industry's ratios, you may not want to mention to your lender that you're thinking of renting. We're not suggesting that you lie on your mortgage application. That's a federal offense. But if you happen to change your mind, well, that's another story. "A lot of people go in under the guise of buying vacation property for personal use only to turn around and rent it out," says Keith Gumbinger, of mortgage researcher HSH Associates. "I have never heard of people getting caught."

(Copyright 2001 SmartMoney.com. All Rights Reserved. This material may not be published, rewritten, or redistributed.)
  • Local NewsMore>>

  • People's United: Retirement Plan Updates

    People's United: Retirement Plan Updates

    Thursday, April 24 2014 7:45 AM EDT2014-04-24 11:45:35 GMT
    The Internal Revenue Service is requiring companies to update their retirement plan documents.More >>
    The Internal Revenue Service is requiring companies to update their retirement plan documents.More >>
  • Rutland pharmacist accused of stealing meds

    Rutland pharmacist accused of stealing meds

    Wednesday, April 23 2014 11:43 PM EDT2014-04-24 03:43:47 GMT
    In Rutland a pharmacist is accused of stealing meds from his employer. 32-year-old Brandon Cigana worked at the Walgreens Pharmacy on Woodstock Avenue. Prosecutors say he used his position there to access the pharmacy's inventory stealing regulated drugs like benzodiazepines, Hydrocodone and Suboxone for himself without a prescription. The Whitehall, New York man faces up to two years behind bars.More >>
    In Rutland a pharmacist is accused of stealing meds from his employer. 32-year-old Brandon Cigana worked at the Walgreens Pharmacy on Woodstock Avenue. Prosecutors say he used his position there to access the pharmacy's inventory stealing regulated drugs like benzodiazepines, Hydrocodone and Suboxone for himself without a prescription. The Whitehall, New York man faces up to two years behind bars.More >>
  • Drug bust in Burlington's Old North End

    Drug bust in Burlington's Old North End

    Wednesday, April 23 2014 11:44 PM EDT2014-04-24 03:44:04 GMT
    Police made a drug bust Wednesday night in Burlington's Old North End. Police and the U.S. Marshal's raided this home on Cedar Street around 8 o'clock. They say they seized heroin and cocaine. Six people were inside when authorities went in. But they're not saying how many arrests were made. The raid was part of an ongoing drug investigation.More >>
    Police made a drug bust Wednesday night in Burlington's Old North End. Police and the U.S. Marshal's raided this home on Cedar Street around 8 o'clock. They say they seized heroin and cocaine. Six people were inside when authorities went in. But they're not saying how many arrests were made. The raid was part of an ongoing drug investigation.More >>
  • Fire damages Lyndonville tree farm

    Fire damages Lyndonville tree farm

    Wednesday, April 23 2014 11:44 PM EDT2014-04-24 03:44:21 GMT
    Fire has damaged ten acres of a Lyndonville tree farm. Eight department were called in to battle the blaze. And it took four hours to get the flames under control. Fire officals say a discarded cigarette combined with dry conditions are to blame. One firefighter suffered from minor smoke inhalation.More >>
    Fire has damaged ten acres of a Lyndonville tree farm. Eight department were called in to battle the blaze. And it took four hours to get the flames under control. Fire officals say a discarded cigarette combined with dry conditions are to blame. One firefighter suffered from minor smoke inhalation.More >>
  • A warning for bird watchers: Give eagles space

    A warning for bird watchers: Give eagles space

    Wednesday, April 23 2014 11:44 PM EDT2014-04-24 03:44:36 GMT
    Bird watchers are being reminded to give nesting bald eagles plenty of space. The Vermont Fish Wildlife Department is urging anyone who sees a nesting eagle not to get closer than 300 feet. Activity too close to their nest can result in them abandoning their young. Harassing a bald eagle is illegal and a violation of the state endangered species statute.More >>
    Bird watchers are being reminded to give nesting bald eagles plenty of space. The Vermont Fish Wildlife Department is urging anyone who sees a nesting eagle not to get closer than 300 feet. Activity too close to their nest can result in them abandoning their young. Harassing a bald eagle is illegal and a violation of the state endangered species statute.More >>
  • Gun fired into New Haven home

    Gun fired into New Haven home

    Wednesday, April 23 2014 11:44 PM EDT2014-04-24 03:44:48 GMT
    Police are searching for who fired a gun into a home in New Haven. It happened late Tuesday night at 2420 Munger Street. Police say a bullet passed through a window of the home. Luckily no one was hurt. Investigators say a stop sign at the intersection of Munger Street and Cobble Road had also been shot. Anyone with information should call state police.More >>
    Police are searching for who fired a gun into a home in New Haven. It happened late Tuesday night at 2420 Munger Street. Police say a bullet passed through a window of the home. Luckily no one was hurt. Investigators say a stop sign at the intersection of Munger Street and Cobble Road had also been shot. Anyone with information should call state police.More >>
  • What triggered a shooting inside the Bennington police station?

    What triggered a shooting inside the Bennington police station?

    Wednesday, April 23 2014 6:57 PM EDT2014-04-23 22:57:35 GMT
    A Bennington man is in stable condition after being shot by an officer inside the Bennington Police Department. Investigators say Gregory Filo had a knife and was behaving erratically.More >>
    A Bennington man is in stable condition after being shot by an officer inside the Bennington Police Department. Investigators say Gregory Filo had a knife and was behaving erratically.More >>
  • Former Fortune 500 exec indicted in fatal NH crash

    Former Fortune 500 exec indicted in fatal NH crash

    A New Hampshire grand jury has indicted a former Fortune 500 executive on second-degree murder charges in connection with a crash that killed a Vermont couple in December.More >>
    A New Hampshire grand jury has indicted a former Fortune 500 executive on second-degree murder charges in a crash that killed a Vermont couple in December.More >>
Powered by WorldNow
All content © Copyright 2000 - 2014 WorldNow and WCAX. All Rights Reserved. For more information on this site, please read our Privacy Policy and Terms of Service.