The first thing you must know is there are different mortgages to finance a vacation home and each of these mortgages have their own set of rules. There are three main mortgages: primary residence loans, second-home loans and non-owner occupied loans.
A primary residence loan is where a borrower will find the lowest mortgage rates. After living in the house for at least one year you are legally free to rent out the home as an airbnb. A second-home loan has the same rates as primary residence loans; however, down payments will be larger. On the average lenders require 20-25%. Finally, non-owner occupied loans, which are also called rental property loans. These loans will run you about .35 percent higher than primary and secondary home rates and your down payment will typically be 30-35%. With a non-owner occupied loan you will be allowed to rent it out and also to use it when it’s not being rented.
When you take a loan for an airbnb, there is a document titled the note. The note will have all the information about the “cans” and “can’ts” of your loan. This will include everything from the loan rate to any additional requirements of the loan. This is where you will find, in a second-home mortgage, that says you can not rent out the home. If you do not follow these laid out rules you will be found in default of the loan.
Many people are choosing to invest in vacation properties. If the property is near a popular tourist destination it is very possible that the entirety of the mortgage can be paid solely from renting the property out. Airbnb is taking over hotels. Why would people pay the same amount for a hotel room when they can have an entire condo for close to the same price? It’s a brilliant idea to buy a vacation home and have the mortgage paid by tourists. Unfortunately, financing the purchase of vacation real estate can be quite the challenge. Typically, lenders don’t lend large loans on vacation rentals because they are considered investment properties. The problem lies in that banks have no reliable source of data for the vacancy rates on a vacation rental property. Add on that appraisers don’t use short-term rental rates when looking at rental or vacation properties. What that means to a potential buyer is that these properties are undervalued in their potential generation of income. Therefore, banks are not confident on a borrower’s ability to pay the mortgage on said property.
This is where a hard money loan comes into play. These investors know the market is out there and believe a profit can be made. Hard money investors do not base your ability to pay back the loan on your debt-to-ratio or your credit. These loans are based on a borrower’s assets. They are asset based loans. You can find them as low as 7% interest and your investor will work with you closely on loan terms. Remember, where there is a dream, there is a way. See a hard money investor to explore the options that are available to you.
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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