How to Finance a Vacation Home

By Lynn Lauren, eHow Contributor

Many homeowners dream of owning a second home, either at the beach or at the mountains. This dream is not out of reach for many borrowers although the process to finance that dream seems overwhelming. However, the process to finance a second home is quite similar to the process to finance a first home. With some basic knowledge of lending rules and regulations, you too can find out if you can finance a second home.

 

 

 

 

 

 

Instructions

 

• 1
  Check your credit through a free service such as AnnualCreditReport.com to make sure there are no errors listed on your report. (See Resources 1) This will ensure that you have the highest score possible and therefore get the best financing rates. The credit report service will ask you to provide your full legal name, Social Security number, date of birth and credit card information to verify your identity.

 

 

• 2
  Use an online mortgage calculator, such as Mortgage Calculator.org, to find out your approximate payment on your second home. (See Resources 2) The biggest ratio used by lenders to see if you qualify for a second home is a debt to income ratio. Divide all of your monthly debt payments (such as your current mortgage, credit card payments, car loans, etc.) by your gross monthly income. Add the second home payment into your debts and do the math again. The first ratio should be less than 30 percent, and the second should be less than 50 percent. If this is the case, there is a good chance that you will be qualified to purchase a second home.

• 3
  Get pre-qualified with a mortgage lender prior to searching for a home. Fill out a mortgage application and provide the lender with two months' bank statements, two months' pay stubs and two years' tax returns. The lender may request additional information based on your situation. Also inform the lender of your price range and expected down payment.

 

 

Tips & Warnings

• When shopping for rates, provide potential lenders with your credit score as opposed to having them pull it. This will limit the number of pulls on your credit report and limit the impact of shopping rates on your credit score. The lender may not be able to lock in your loan until they officially pull credit, but they can at least give you an idea as to what rate you might get prior to the credit pull.


• Do not shop for a second home until you get pre-qualified. You do not want to get your hopes up and then not be able to secure financing.