Simpler vacation home lending, along with status and sentimentality, are big factors when average and affluent people decide to buy a second home.
What could be better than sitting on your deck with a glass of wine watching the Gulf of Mexico at your backdoor? Sharon Waldecki gets to do that whenever she heads to her vacation home in Marco Island, Fla.
“My husband and I work very stressful jobs. We hop on a plane and in three hours we are sitting on the beach. It’s totally peaceful and so different from where we live,” she says.
The Waldecki family is among the lucky ones who can afford that second home to escape to for some rest and relaxation. If you’ve been considering finding that perfect vacation home, it could be a good time to fulfil that dream for a variety of reasons including financial, emotional and investment-wise.
“Yes, lending guidelines have tightened up in recent years. But we are actually seeing those guidelines loosen up a bit in the second home arena,” says Waldecki.
She serves as a senior loan officer and a Michigan and Florida lending specialist for VanDyk Mortgage. Helping others get loans for their second and vacation homes is one of her fortés.
Vacation Home Lending Requirements Loosening
That loosening up for instance might be seen in the down payment area.
“In the past, you would have had to put down 20 percent on a vacation home before a lender would look at you because the PMI (private mortgage insurance) companies refused to insure the loans without that much down. If you couldn’t get insurance on the loans, you couldn’t get the loans,” she says.
But today, many lenders will allow you to put just 10 percent down, and that’s only been in the most recent months, Waldecki says. However, the average vacation home buyer that she deals with usually puts down 20-30 percent of the purchase price.
Jumbo Second Home Loans
Lately, she has been dealing with a lot of jumbo loans, where the minimum is $417,000 being borrowed.
“The jumbo market has gotten very competitive in the last six months. You can get a rate below a conventional loan with a jumbo loan,” she says.
Plus, she is also seeing some combination of first and home equity loans being worked out so people can buy that second home. However, many times she is helping people purchase that dream home that is $1 million or more.
“Most of the buyers that are buying over $1 million usually pay cash. If they want a loan, it is usually temporary because they are maneuvering their assets,” she says.
When people do buy vacation homes, they can usually hire someone from the area to check in on the property once a month and double check things, she says. Many of the properties she helps buyers find in Florida are usually in associations, which can help with security while buyers are away.
Another positive for buying a second home is the tax deductions that come with it. “It all depends on your tax bracket. You need to talk with your CPA about this issue,” Waldecki says.
Inventory for vacation homes is quite high in many areas right now.
Mary Zeppenfeld, realtor for The Andrea Cross Group of Coldwell Banker in Holland, Mich., is selling and listing vacation homes in all different price points.
“We are getting more on the market all the time. The people we work with want luxury and a waterview. They want it all,” she says.
Her agency has second homes available that cost $200,000 up to $40 million. The average is $2 million. Most of them sit on Lake Michigan or other surrounding lakes.
“Many of these homes come with the furniture. The furnishings are negotiated into the price,” she says. “The buyers don’t want to make any remodeling or repairs.”
Vacation Homes to Relive and Create Memories
Whether or not buyers of vacation homes are doing it for the investment, many are doing it for emotional or sentimental reasons, Zeppenfeld says.
“It might be that they have always wanted a home on Lake Michigan, or their grandparents had one while they were young. They have these great memories of their summers there with family all around them,” she says.
Vacation Home Buyers Consider Distance and Amenities
When people consider buying that great vacation home, many do consider the travel time to and from the location. For instance, Zeppenfeld says many people from the Chicago area seek out their Lake Michigan paradise home about two to three hours from their home.
“It is the ultimate status for Chicagoans to have a Lake Michigan home. So, the closer to Chicago on the lake that you go, the more expensive the properties will be. Once you go up farther on the coast of Michigan, you can get more for your money,” she says.
But beware when buying a second home in certain states or counties when it comes to property taxes. For instance in Michigan, you could pay more than 40 percent more on your property tax bill if your home is not your primary residence, Zeppenfeld says.
Some vacation home buyers she works with are looking for active communities with festivals, great farmer’s markets and restaurants, bike paths and other outdoor amenities. Others just want peacefulness and no close neighbors.
“You just need to ask a lot of questions of your real estate agent and lender. But find a knowledgeable agent who knows the area. That person can check on everything from bi-laws and governance of a gated community to whether or not the building has been built on stable land, and whether or not a certain area works with your lifestyle,” she says.