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Bruce McCoy
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Rental & Vacation Home Mortgages
So you are one of the few that cashed out your stocks before the stock market imploded & you are looking around for a better return than the banks are paying, or you want to finally buy that vacation condo in Hawaii. Mortgage rates are bouncing off 40+ year lows, and this may be your best opportunity to afford either of these options. Let’s talk about the differences in financing.
Vacation homes are the easiest to explain. Typically lenders require only a 10% downpayment of the purchase price. This 10% can be from savings, credit line on your principal residence or, my favorite, the seller of the home you are buying can carry the downpayment in the form of a note on any other property that you may already own. (This also works for buying a new home.) The lender will now qualify you (underwrite) for the new proposed purchase loan with all standard credit, income, and property issues. The interest rate is the same for conforming (under $322,700) loans and generally the same for jumbo (over $322,700) loans.
Investment or rental homes usually require at least a minimum of 20% downpayment and sometimes as much as 30%. Again the downpayment can come from the same sources as a vacation home. Lenders typically underwrite your income based on projected rents provided by the property appraiser. The projected rent is multiplied by 75% (net income). This net income is then subtracted from the total payment of the new property. Only the remainder is added to debt or income. Interest rates for conforming loans are still the same, only the points charged by the lender increase. For example, a zero point loan for a vacation/ principal residence would cost 1.5 points for an investment property.
Give me a call to discuss your situation or to clarify any of the above.
Mortgage interest rates for conforming loans (under $322,700) as of 5/19/03 (p.m.) are:
30 year fixed: 4.875% (APR 5.097%) payments are $1,707.75/mo
15 year fixed: 4.25% (APR 4.63%) payments are $2,427.60/mo.