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When is it a Good Idea to Buy a Vacation Home?

Posted by Justin Havre on Monday, January 7th, 2019 at 8:17am.

How to Know if Buying a Vacation Home is Right For YouBuying a vacation home is a great idea for many but you want to make sure that you do not make a hasty decision. It is not always the best time to purchase a vacation home so you want to make sure that you have everything lined up before you take the plunge. The timing for purchasing a vacation home depends on not only your personal financial situation but also the season where you are purchasing.

How to Qualify for a Mortgage on a Secondary Home

Qualifying for a mortgage on a secondary home starts with stable finances and a great credit score. Lenders typically want to see a credit score of above 725 and a strong debt to income ratio for these types of loans. If you do not meet these qualifications, all is not lost, as a sizeable down payment can potentially make up for the discrepancies.

You will need to look at your finances to determine if you can handle both mortgage payments and all other related expenses. Consider how each type of financing you might qualify for will positively or negatively impact your financial health. Remember that for a mortgage on a second property, you must have a down payment of at least 20 percent on hand in addition to all the closing costs. You cannot tap into your retirement savings plan, or RSP, to cover any portion of the down payment.

You can have your lender run the numbers, or utilize mortgage calculators and other tools on your own, to check your ability to cover all your expenses. Before going to your lender, gather the paperwork you need to apply for the mortgage on a secondary home. Your lender will have you fill out an application and copy your paperwork for consideration by the underwriting team. If any other paperwork is needed to finish processing your application, your lender will reach out. Do your best to promptly acquire all the necessary documents to receive a decision in a timely manner.

Upon processing your application, your lender will reach out to discuss the results with you. If you do not qualify for the second mortgage you applied for, you may have other options to consider at that time. Your lender will assist in your acquisition of a secondary property to the best of their ability. You can ask your lender questions and voice your concerns to receive the support you need while acquiring a mortgage on a secondary home.

Make Sure You Can Afford the Purchase

You want to take a good, long look at your financial situation to ensure that you have everything you need in order to purchase the vacation home. That means making sure that the purchase you make for this new home will not only fit within your budget but that it will also not cause any problem with your primary mortgage payment. You want to ensure that purchasing this vacation home will not cause you to possibly lose your primary home in the process.

Once you have determined if you're in a position to buy a second home, you want to make sure that you can afford the home inspection and all of the additional upkeep. Just like with any other property, you need to be able to afford the upkeep of the new home. Having this extra cushion in your budget to handle these issues is key. The last thing you want to do is make sure that you have the down payment for the property saved up.

If you do not have the money to spend on the down payment quite yet, then you want to start putting some cash away to ensure you can do so easily. You should try to at least get 10 to 20 percent of the purchasing price for the down payment unless you have other mortgage options you are considering that allow for a lower down payment.

Purchasing During the Off-Season

If it is at all possible, you should try to wait until the off-season to purchase your vacation home. Most people look at purchasing vacation homes during the most popular season because that is when it is on their mind the most. However, this can be a big mistake because you may end up spending even more on the home as a result.

During the peak season for vacations in the area, such as winter in West Calgary, there will be a lot more interest for purchasing vacation homes in the area. Because of this increase in demand, there will also be an increase in the price for the inventory of homes. Instead of getting into a bidding war for a property, you should try to wait until the off-season to find the perfect one for you at the lowest price.

However, if you happen to find the perfect property during the peak season for the area and do not want to risk losing the property to someone else by waiting, then you can consider purchasing during this time. It is important to understand that purchasing during the peak season will usually result in a higher cost for the home and you will need to move faster to close on the home.

Purchasing a vacation home is an exciting part and step in life especially if you are in the position to buy an oceanfront property. Once you fall in love with an area, making the purchase of a vacation home there can be a great retreat but making sure that you have everything ready and that the timing is right is key.

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