Vacation Home Still Works For Some

Securing A Loan

In today’s market, however, finding a vacation home and financing it are two separate things.

Thanks to the mortgage crisis and rash of foreclosures, banks have tightened their lending restrictions, requiring at least 10 percent down for a second home.

If you plan to rent your second home for more than two weeks a year, the bank considers that an investment property and will likely require the full 20 percent down payment.

Needless to say, a strong credit score is also a must.

Even perfect credit history and a fat down payment, however, won’t do you much good if you’ve been unemployed – even temporarily – over the last few years, says Tami Toner, a real estate agent with David Stubbs Real Estate in Solana Beach, San Diego.

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“The most important thing you’ll want to show is that you have two years of steady income,” she says. “Even buyers with a large down payment  and a hefty bank account but spotty employment history, will not be in as strong a position as someone with less cash and a steady income."

Fortunately, many purchasing a second home don’t require financing at all.

In 2007, NAR reports 30 percent of vacation home buyers paid cash. Those who don’t typically put down far more than the 20 percent required to avoid paying private mortgage insurance.

The Ground Floor

Though market conditions are ripe for snapping up a second home, Boykin cautions buyers to take their time, do their research and manage their expectations.

Don’t overestimate your ability to maintain or rent the property, and don’t count on flipping it for a profit anytime soon.

By buying smart, you should be well positioned to profit from your purchase down the road when the real estate recession subsides.

“The problem with following the crowd is that by the time you feel comfortable dipping your toe back in the market, it may have started to peak again,” says Boykin. “When you buy near the top and the market goes down, you could be faced with the situation of having a house that is worth less than you owe. But when prices are down, as they are today, you’re buying with some profit built in and that will help when you go to sell it, or if you find you need to sell a little earlier than anticipated.”

• Slideshow: Million Dollar Homes

© 2012 CNBC.com

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