Want a Second Home? Save Up.
Saturday, April 18, 2009
Getting a mortgage for a home these days can be tough, and getting one for a second home can be even tougher.
In the wake of the mortgage market meltdown, lenders are demanding particularly large down payments from people shopping for a vacation home or an investment property, a group they deem to be especially risky.
But as the vacation season approaches, coming up with that cash may be a real challenge. Home-equity lines of credit, once a reliable source of down-payment money, are no longer readily available to homeowners. The popular low-down-payment loans backed by the Federal Housing Administration are limited to primary residences. And the private mortgage insurance required of borrowers who can't afford a 20 percent down payment is nearly impossible to find in areas where home prices are declining.
Because second-home buyers have always been perceived by lenders as a bigger risk, they tend to pay a higher interest rate on their loans, anywhere from a quarter to half of a percentage point.
"The idea is that if you have two homes and you can't afford one of them, you will choose to keep the roof over your head," said Eric Gates, president of Apex Home Loans, a Bethesda mortgage brokerage.
And buyers who plan to rent out their units have even more hoops to jump through than those who don't, said Steve Calem, president of Capital Funding Group, a mortgage consulting and advisory firm. For instance, they must get an appraisal that assesses the rental rates in the area in addition to the usual paperwork, Calem said.
All these issues may be moot for many buyers, who tend to be a relatively affluent bunch, according to a new survey by the National Association of Realtors.
Last year, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, the survey found. The median household income was $97,200 for a vacation-home buyer and $85,000 for an investment-home buyer -- compared with the $73,300 median for people buying a primary residence.
Dudley Dworken of Potomac did not pay all in cash, but he did make a 35 percent down payment when he bought a vacation home in Ocean City late last year. He therefore had no problems getting a loan, he said. It didn't hurt that he had excellent credit and 95 percent equity in his primary home.
Dworken ended up with exactly what he wanted after an exhaustive two-year search: a beachfront condominium close to home at the right price. He could have bought earlier, he said, but he figured prices had not yet bottomed out.
"I think we bought at the perfect time," Dworken said. "Property at the beach right now is dead."
After the housing market tanked -- and took the economy down with it -- the median sales price of a vacation home fell 23 percent, to $150,000, last year from the previous year, the Realtors survey found. The median price of an investment home dropped 28 percent, to $108,000.