Cabin envy can be contagious, especially during the summer months in Minnesota. Similarly, a desire for vacation homes in southern climates are appealing as temperatures start to drop. Hoping for a cabin is one thing, but making it happen takes some planning.
Here are 8 things to consider before you start searching listings on the lake of your choice.
- Narrow your search. Before you jump at the first for-sale sign, think about what’s important to you. It could be in proximity to your home to minimize driving. Maybe you want a place that’s big enough to host many guests. Perhaps you want a fishing lake or one that’s crystal clear. Creating a list of priorities can help you make decisions or prepare to compromise.
- Do your homework. Observe your surroundings and ask a lot of questions. For example, if you envision a weekend on jet skis find out if the lake you’re considering allows motorized watercraft. If you plan to use the place in winter, make sure access roads get plowed.
- Know your limit. Vacation real estate is in high demand and competition can drive up prices. It’s smart to know the price range you can afford and stick to it. Buying a cabin oftentimes involves buying water toys and a new pontoon. If it’s a vacation home you’re considering several states away, airfare and rental cars can add up. Keep related future expenses in mind when deciding how much home you can afford.
- Check your credit. It’s common for your credit score to be a difference maker when it comes to qualifying for a better interest rate on a home loan. It’s the same if you’re buying a second home or cabin. Some lenders will require a bigger down payment if your credit score falls below certain thresholds, especially when the property you’re financing is not your primary residence.
- Balance debt and income. Lenders will consider your ability to make payments on both your primary residence and the second home. The equation used is called your debt-to-income ratio. It’s calculated by dividing your total monthly debt payments by your gross monthly income. Ideally, you want a percentage less than 50% since that’s the high end of what lenders consider too much debt when compared to your income. Remember to include all sources of monthly income, including side gigs, child support and Social Security.
- Ask about loan options. We had a client who contacted us about a second mortgage when buying a home in Arizona. A simple conversation about the mortgage options available prompted them to complete a cash-out refinance on their primary home and faster turnaround on the transaction.
- Plan to rent it? If you’re planning to rent your second home or cabin, even for just some of the time, it could be considered investment property where the mortgage is concerned. That could have an impact on the required down payment, interest rates and more.
- Hire local experts. Have you talked with realtors who specialize in cabins? If you’re shopping for a vacation home in the south, can you find experts who know that market? If renovations or repairs are in order, it might make sense to hire contractors locally as well.
At First Class Mortgage we get to know our clients and understand their circumstances. We can work with you to tailor a loan program that can make your plans for a lake cabin or vacation home come true.