We get a lot of people that already own property in another part of the country looking to buy a second home or vacation condo in Panama City Beach. We also get a lot of questions such as, how do I go about financing it? What’s the best way to finance it? And if I’m already paying a mortgage can I pay another mortgage and rent out the condo?
If you’re looking for different ways to finance a second home or investment condominium, you’ve come to the right place. Here are some steps you can take in order to boost the creativity on financing for a second home or vacation property.
Shop around for the best lender.
Just because your bank offers you your current loan doesn’t mean that it is the best option for a second mortgage. Shop around for the best loan rates, terms, and with a lender you feel comfortable with and can trust. There are many lenders out there but very few personal lenders that will work with you to achieve your goals.
Chances are, you are reading this because you’ll need to get a loan. If you have the cash out right, you’re probably not reading how to finance a second home. So, we will talk to people just about financing a second home.
Read more: 3 Ways to Manage Debt and Buy a Condo
Something you should be aware of is that lenders feel that second homes pose a higher risk of default so your lender will probably want to hire down payment. A lot of people put down about 20% on a second home, which will give you a lower interest rate and better terms.
There are a variety of ways to get that 20%.
- Save the money
- Get a home equity line of credit
- Sell personal property
- Get a grant in your city and state
- Ask for a gift from friends or relatives
- Ask for an investment from an investor
- Go in with another buyer
There are a variety of ways to get this 20% down payment and if you are looking for a second home or condominium in Panama City Beach, these will range anywhere from about $100,000-$800,000, so it’s also going to depend on how much you wanting to spend on a condo. If you’re just looking for a 700 square-foot vacation condo that you can rent out most of the year, you might be looking at simply $20,000 down payment. If you’re looking for a luxury condominium with over 2400 ft.², you’re probably closer to a $100,000 down payment.
If you’re looking at getting a conventional loan for a vacation property you may also have a higher interest rate and tighter guidelines that you’ll need to meet. Also, in order to qualify for a conventional loan, you’ll need to meet higher credit score standards. You’ll need at least a credit score of 725 or even higher depending on which lender you choose. Your monthly debt to income ratio needs to be strong as well and if you have too much debt versus not enough income to cover two mortgages as well as any other debts you might incur, the lender will feel you are too high of a risk.
Read more: Benefits to buying a condo on the beach
Lenders also want to see that you have cash reserves on hand. Remember, you are now maintaining two properties, in which you’ll need to maintain should an appliance go out or a special assessment is needed. Most condominium associations have monthly homeowners dues anywhere from $100-$800 per month or per quarter. These will need to be added onto your monthly mortgage payment when considering how much you’ll need overall each month to maintain the condo.
Vacation homes and condominiums also pose a higher risk than a primary residence. Borrowers are more likely to default on vacation homes in their primary residence. This is something to consider when debating how long you’ll be at the vacation home each year.
Lenders may also require that the condominium development or complex have a 70% owner occupation and no more than 15% of the owners are behind on their condo association dues. Condos require additional financing requirements so you want to find a complex in Panama City Beach that allows for these types of finances.
(As a Panama City Beach real estate professional I know exactly which complexes and developments will allow vacation rentals and purchases)
Alternative Financing Options
A final option is an alternative lender often times called a “hard money lender”. These lenders provide financing at above market rates to borrowers and can often provide cash when the banks will not comply. These types of lenders are not always easy to locate but you can call your mortgage lender or broker and ask for referrals. You can also look for ads in newspapers and publications with real estate listings. A word of caution, however, when financed at above market rates, they can quickly turn into a burden.
Split up with someone else. We have a lot of buyers that go in with friends or family in order to buy a condominium that they can use all year long. This is a great option if you have a good rapport with the person you’re going into business with. A lot of times we have two or three different couples or families that choose to purchase a condominium together. Everything should be done in writing and there should be a legal contract drawn up that binds everyone to the stipulations, rules, and requirements from the beginning. Everyone has a responsibility to pay association dues and part of the mortgage each month. There should be addendum’s and caveats should the need arise for one party to be bought out by the others. This all should be drawn up legally by a lawyer but it is a great way to buy a condominium in a vacation city without paying full price.
There are a lot of ways to own a second home and we’ve seen just about every scenario out there. If you’d like to ask more questions about financing a second home or condo in Panama City Beach contact our office today. This is what we do and we love it. We look forward to talking with you soon about financing your vacation home.