Financing a vacation home

New build opportunities

You have options when it comes to financing your vacation home

The best way to establish what terms of mortgage you can qualify for is to meet with a mortgage specialist who will be able to do a pre-approval for you.

In many cases, overseas buyers choose to purchase their US property with cash reserves. However, if needed, there are many banks and other financial institutions in the US willing to lend funds to overseas buyers to enable them to purchase vacation rental property. The terms of loans afforded to US buyers tend to differ from those offered to US nationals, and this is mainly based upon the perceived risk the banks face when lending to clients based thousands of miles away, and who may have little in the way of a track record with US lenders.

Lending institutions normally compensate for this perceived risk in a few different ways, such as limiting the Loan-to-Value ratio (LTV), increasing the interest rate charged, or requiring the borrower to provide cash reserves equal to a specific number of monthly repayments.

In typical market conditions, LTV’s can range from 50% to 70%, interest rates can range from 4% to 7%, and cash reserve requirements can range from 3 repayments to 12 repayments. Of course, these amounts vary from bank to bank, and also upon changes in market conditions.

Meeting with a mortgage specialist to get a pre-approval puts you in a strong negotiating position with a seller or developer. A pre-approval is not a loan commitment, but it does give a very strong indication as to what amount and terms of loan you can qualify for, and as a result is often used by buyers to demonstrate to sellers that they are credit-worthy. In fact, in certain market conditions, sellers will ask to see a loan pre-approval before they will enter into a contract with a buyer.

In most cases, if a buyer is ultimately unable to get a loan, as long as they made a concerted effort to obtain one, and abided by all other aspects of the contract, they will be released from the contract without penalty.