Whether you're looking to escape to the beach, the mountains, a lakefront retreat, or a vibrant cosmopolitan scene, having a vacation home is one of the best ways to go. Let's delve into some things to think about if you're thinking of buying one.
What exactly is a vacation home?
While they may seem identical, vacation homes and second homes are not always the same thing, and they may be classified differently for tax purposes, such as when the time comes to sell the property down the road. While one can rent out a vacation home, vacation homes are different from investment rental properties, in that vacation homes are defined as secondary dwellings that are not the owner's primary residence and are partially for recreational use by the owner. If it's to be considered a vacation home, the owner must use the home for personal purposes more than 14 days a year and stay there at least 10% of the number of days that the home is rented.
Platforms such as Airbnb and Vrbo have made it easy to generate income with vacation homes. If that's your plan, you'll want to do some homework and look into the vacation rental market before you buy. While there are several online tools to do this, the independent analytics firm Airdna is a top choice because they specialize in Airbnb vacation-rental data. There you'll find metrics on factors such as invest ability, revenue growth, rental demand, and much more.
It's a Hyper Competitive Market
As is the case with the market for primary residences, the vacation home market is red hot and on a steady rise that's seen a jump since the onset of COVID-19. Data from the National Association of Realtors shows that vacation home sales rose by 16.4% in 2020, well outpacing the overall growth of existing-home sales, and the increases continued through the first few months of 2021. According to Redfin, in March 2022, the demand for vacation homes was up about 35% above pre-pandemic levels. And that's a drop-off; Redfin reported a whopping 87% increase in vacation-home demand the month prior.
Starting Your Search
As vacation rental markets are most often specialized and local, you'll want to find a local real estate agent at the onset of your search. This local expertise can be especially important if you plan to rent your vacation home, as short-term rentals are illegal in some locations and a range of other local zoning and rental rules may apply.
Choosing the Location
While most people know the old real-estate adage of "location, location, location," many don't know exactly why that's number 1, 2, and 3 on the list of important things to look for in a home. It's rarely the physical structure of a home that appreciates, as nearly all structures depreciate with time, but the land the home sits on that gains the most value. It's not a distinction without a difference; land is a finite resource that's in ever-increasing demand with population growth. And so, land has a significant influence on a home's resale value, often well above any other factor. You'll want to carefully evaluate where that land is and consider these things:
- Neighborhood. One gauge to see if you're buying in a good neighborhood is to look at how long homes for sale there stay on the market. If they don't last long, that's a good sign that others deem this to be a good place to own a home. Another is schools. Whether you plan to take advantage of local schools or not, you should check if the area is served by good public schools, which often adds value to homes in that location. And even if you're searching for a secluded getaway, you'll still want it to be close enough to some restaurants, shopping, and grocery stores.
- Lot considerations. If the home has a nice view, that home's lot should have solid appreciation in value. Views of water, or even just being near bodies of water, can add significant value when you decide to sell the home. On the contrary, homes that face anything unsightly, such as major roads, congested commercial areas, or homes that look directly at a neighbor's home, tend to have less resale value.
- Development. Is the home you're looking to buy in an established neighborhood, or do you see lots of spaces around the home where change could happen? If it's the latter, you'll want to investigate if there are any plans such as housing starts or large construction projects in the works. These changes could have positive impacts on your home's value — such as hospitals or transportation infrastructure — but they could negatively affect both your home's resale value and the time you want to spend enjoying your vacation home.
Green Features are the Future
While location may be the biggest factor in determining a home's value, it's not the only one. According to the National Association of Realtors, almost two out of three homebuyers called green features "somewhat valuable" and about the same number of real estate agents and brokers find value in listings that promote energy efficiency. So energy-efficient windows, insulation, solar panels, and Energy Star-rated appliances are all things to look for in listings.
Financing Your Vacation Home
When heading into a competitive sellers' market, whether it's for a primary or a second home, there may be no more valuable a tool for a homebuyer to have than a mortgage pre-approval. As for financing options, you have lots to choose from. Here are just a few:
- Self-employed homebuyers may look to Bank Statement Loans for their second homes. Loans for up to $3 million consider bank statements rather than more traditional requirements, such as tax returns.
- People with considerable equity in their primary residence might consider Cash-Out Refinancing to buy a vacation home.
- Conventional mortgage loans that conform to guidelines established by Freddie Mac or Fannie Mae can be great ways for some to buy vacation homes.
No matter where you buy your vacation home or how you'd like to finance it, the loan originators at City Lending are here to help you get your perfect home away from home.
Whether you're looking to escape to the beach, the mountains, a lakefront retreat, or a vibrant cosmopolitan scene, having a vacation home is one of the best ways to go. Let's delve into some things to think about if you're thinking of buying one.
What exactly is a vacation home?
While they may seem identical, vacation homes and second homes are not always the same thing, and they may be classified differently for tax purposes, such as when the time comes to sell the property down the road. While one can rent out a vacation home, vacation homes are different from investment rental properties, in that vacation homes are defined as secondary dwellings that are not the owner's primary residence and are partially for recreational use by the owner. If it's to be considered a vacation home, the owner must use the home for personal purposes more than 14 days a year and stay there at least 10% of the number of days that the home is rented.
Platforms such as Airbnb and Vrbo have made it easy to generate income with vacation homes. If that's your plan, you'll want to do some homework and look into the vacation rental market before you buy. While there are several online tools to do this, the independent analytics firm Airdna is a top choice because they specialize in Airbnb vacation-rental data. There you'll find metrics on factors such as invest ability, revenue growth, rental demand, and much more.
It's a Hyper Competitive Market
As is the case with the market for primary residences, the vacation home market is red hot and on a steady rise that's seen a jump since the onset of COVID-19. Data from the National Association of Realtors shows that vacation home sales rose by 16.4% in 2020, well outpacing the overall growth of existing-home sales, and the increases continued through the first few months of 2021. According to Redfin, in March 2022, the demand for vacation homes was up about 35% above pre-pandemic levels. And that's a drop-off; Redfin reported a whopping 87% increase in vacation-home demand the month prior.
Starting Your Search
As vacation rental markets are most often specialized and local, you'll want to find a local real estate agent at the onset of your search. This local expertise can be especially important if you plan to rent your vacation home, as short-term rentals are illegal in some locations and a range of other local zoning and rental rules may apply.
Choosing the Location
While most people know the old real-estate adage of "location, location, location," many don't know exactly why that's number 1, 2, and 3 on the list of important things to look for in a home. It's rarely the physical structure of a home that appreciates, as nearly all structures depreciate with time, but the land the home sits on that gains the most value. It's not a distinction without a difference; land is a finite resource that's in ever-increasing demand with population growth. And so, land has a significant influence on a home's resale value, often well above any other factor. You'll want to carefully evaluate where that land is and consider these things:
- Neighborhood. One gauge to see if you're buying in a good neighborhood is to look at how long homes for sale there stay on the market. If they don't last long, that's a good sign that others deem this to be a good place to own a home. Another is schools. Whether you plan to take advantage of local schools or not, you should check if the area is served by good public schools, which often adds value to homes in that location. And even if you're searching for a secluded getaway, you'll still want it to be close enough to some restaurants, shopping, and grocery stores.
- Lot considerations. If the home has a nice view, that home's lot should have solid appreciation in value. Views of water, or even just being near bodies of water, can add significant value when you decide to sell the home. On the contrary, homes that face anything unsightly, such as major roads, congested commercial areas, or homes that look directly at a neighbor's home, tend to have less resale value.
- Development. Is the home you're looking to buy in an established neighborhood, or do you see lots of spaces around the home where change could happen? If it's the latter, you'll want to investigate if there are any plans such as housing starts or large construction projects in the works. These changes could have positive impacts on your home's value — such as hospitals or transportation infrastructure — but they could negatively affect both your home's resale value and the time you want to spend enjoying your vacation home.
Green Features are the Future
While location may be the biggest factor in determining a home's value, it's not the only one. According to the National Association of Realtors, almost two out of three homebuyers called green features "somewhat valuable" and about the same number of real estate agents and brokers find value in listings that promote energy efficiency. So energy-efficient windows, insulation, solar panels, and Energy Star-rated appliances are all things to look for in listings.
Financing Your Vacation Home
When heading into a competitive sellers' market, whether it's for a primary or a second home, there may be no more valuable a tool for a homebuyer to have than a mortgage pre-approval. As for financing options, you have lots to choose from. Here are just a few:
- Self-employed homebuyers may look to Bank Statement Loans for their second homes. Loans for up to $3 million consider bank statements rather than more traditional requirements, such as tax returns.
- People with considerable equity in their primary residence might consider Cash-Out Refinancing to buy a vacation home.
- Conventional mortgage loans that conform to guidelines established by Freddie Mac or Fannie Mae can be great ways for some to buy vacation homes.
No matter where you buy your vacation home or how you'd like to finance it, the loan originators at City Lending are here to help you get your perfect home away from home.
The goal of homeownership isn’t always an easy one to achieve. But when you do become a homeowner with a mortgage, you can then use that achievement to realize other objectives. Let’s look at a few ways that refinancing can help you to utilize the equity you have in your home as a tool to reach a variety of financial goals.
Investing as a Goal
For a huge number of Americans — almost one in five based on a recent survey — investing is their top financial goal. And this objective is nearly equal across different age demographics, with Generation X, millennials, and Generation Z all showing similar desires to invest more. Baby boomers lag just behind them with about 15% of people in that age group looking to make more investments.
Cash-out refinancing may be one of the best ways you can use the equity you have in your home to help you invest. With this strategy, you would replace the mortgage you currently have with a larger one, and, as the product’s name suggests, take out the difference in cash. You can then use that money to fund a host of different investments. The key here is to invest in something stable that has a rate of return that’s higher than the rate you are paying on the funds you took out through refinancing.
Stocks can be one way to do this. While subject to market forces and not 100% guaranteed to be profitable, historically, the stock market offers an average return of 10%. As a hypothetical, if one is paying 5% interest on the cash they use to invest, and that investment is returning at 10%, they’re making a steady profit. Granted, the rate of inflation will reduce those profits, and stock values fluctuate, so the stock market is a long-term strategy best managed with the help of financial professionals who know what they are doing.
And you might consider that the money you may gain isn’t limited to what the investment earns; given today’s attractive interest rates, you could very well get a better rate on your current mortgage through refinancing and lower your monthly payments.
Refinancing and Real Estate Investing
One of the most direct ways to employ cash-out refinancing to invest in real estate is to use the money you get to put a down payment on an investment property. This could be a considerable amount, as cash-out refinancing allows for borrowers to get up to 80% of the equity they have in their homes — with low credit score requirements, as low as 640. Some borrowers could very well have enough equity in their homes to buy an investment property outright with cash.
Also, keep in mind that refinancing works for the second property as well if, like many, you use a mortgage loan to buy an investment property. Just as you can with your primary residence, you can use refinancing to change the mortgage terms on an investment property. One might wish to refinance from a mortgage with an adjustable rate to a fixed one. Or shorten the term of a loan to own a property sooner, paying higher monthly payments but accruing less overall interest. You might also use cash-out refinancing with the mortgage you have for an investment property to pay for maintenance and repairs on that property.
Paying Down Debt
Recent data shows that paying down debt is the number-one financial goal of people in the United States, as about 20% of Americans are looking to reduce what they owe. You may be able to simply achieve this goal by using the money you save in monthly payments by refinancing at a lower rate and putting that difference toward debt each month. Though one can also use cash-out refinancing to pay off debt by consolidating high-interest debt with a lower-interest loan. Credit card debt, for example, tends to have a higher interest rate than mortgage rates.
Home Improvement as a Financial Strategy
Repairing or upgrading your home isn’t just a goal that could improve your living situation in the short term — it’s also a long-term financial goal. Several home improvements offer significant returns on investments by increasing property values. While not all home upgrades pay off, many do. These often include kitchen updates, replacement entry doors, energy-efficient windows, wood decks, and new garage doors. In terms of cost versus value, Remodeling magazine found that adding stone veneer to a home’s exterior recoups 95.6% of its cost when a property sells. These improvements, paid for through refinancing, could earn you money in the long run.
To utilize refinancing to pay for some or all of these upgrades, you can look to an FHA 203k Rehabilitation Loan. Backed by the Federal Housing Authority, these versatile loans can be used for basic upgrades such as a revamped kitchen or a bathroom makeover, or extensive projects such as additions or even tearing structures down to their foundations to rebuild. It’s a simple deal: you just roll the renovation costs into your current monthly mortgage payment. All with credit-score requirements as low as 580, no tax returns are needed, and you don’t have to currently hold an FHA mortgage to take advantage of FHA refinancing.
More Money for Retirement
One way to use refinancing with retirement goals in mind is to shorten the term of your mortgage so that you pay off a home sooner and retire with less debt. Entering retirement with a home paid off offers peace of mind that goes beyond pure financial stability. But others use a different strategy: using cash-out refinancing to invest in their retirement savings by contributing to a 401(k) or an IRA. This might make sense if the return on the investment is higher than the interest rate on the home loan.
Are you ready to take proactive steps to secure your financial future? If so, City Lending is waiting with a range of loan products designed to help you achieve your financial goals. Contact us today.
While others are out searching for Easter eggs, will you be on the hunt for a new home? The two hunts aren’t all that unalike, taking you into unfamiliar terrain where what you seek feels hidden from sight. So, let’s look at a few ways to make your Easter time home search easier.
Things You Should Do While House Hunting
- Get Pre-Approved for a Mortgage. If you only follow one tip in your hunt for a house, this should be it. Mortgage pre-approval sets serious buyers apart from those who are “just looking.” Many sellers don’t even consider offers from buyers who don’t have the security of likely financing that pre-approval provides. Plus, pre-approval gives you a very good idea of what you can afford, saving you time and frustration in considering homes you can’t.
- Make a Must-Have List. Do some serious soul-searching here — separate the wants from the needs. Of course, must-haves are as diverse as buyers themselves, but many people consider things like commute time to work, the number of bedrooms, and the size of the kitchen as must-haves. A pool is often a want, while things like a home office or a good school district are often needs. Once you have your list of must-haves, the house hunting will be more focused.
- Shop and Shop Some More. Even though demand is high, and inventory is low, historically speaking, there are still sure to be lots of homes that fit what you’re looking for. Instead of letting competition force you into making a rash purchase, take the time to consider as many options as you can. Just don’t be leisurely about it.
- Explore the Neighborhood. Gauging the level of traffic you’ll have is important; this can affect your quality of life. Talk to the neighbors. Check out the zoning laws you’ll be living under. Don’t just consider what the neighborhood is now, but what it may be, as development could considerably change that location. Once you’re serious about a location, you might even consider a mini-vacation and spend a few nights at a hotel there, exploring your would-be neighborhood during the days.
- Understand Patience Vs Inaction. This is a tricky one. You want to take the time to consider all the factors before making one of the most important purchases of your life. And you also don’t want hesitation to make you lose out in a fast-moving market. A good real estate agent can help you to know when to pull the trigger on an offer and when to hold back.
- Check Out Some Amazing Apps. Why not combine your love of scrolling through content on your phone with your hunt for a home? There are some great apps that make it simple. A few of the top ones include the Zillow app, with its much-touted Zestimate feature, estimating the values of homes with remarkable accuracy. Trulia’s app gets points for its user-friendly maps, showing important data such as crime rate, weather, and traffic, while the Realtor.com app features new listings just about every hour.
- Think Long Term. If you’re like many, you picture yourself living in your dream home right now. And that’s great; homes should suit current lifestyles. But where will you be in five, ten, or 20 years? Data from the National Association of Realtors shows that on average people stay in homes for about 13 years, and that in large metropolitan areas that number goes up to 16 years and higher. Is this the home you see your future self in? If there’s a chance your family will grow with children, you should consider looking for a house with more bedrooms and bathrooms than you need right now. As this is a long-term investment, it’s a good idea to investigate whether the homes in the neighborhood have gained or lost value, and by how much.
Things You Shouldn’t Do While House Hunting
- Look Beyond Your Budget. What’s wrong with just taking a few peeks at homes you can’t possibly afford? Just to see what the houses beyond your price range are like. Bad idea. You’re apt to fall in love with something you can’t pay for, then somehow justify that maybe you can afford it, ultimately putting you in a bad financial spot. And if you buy the home that you can afford after dreaming of ones you can’t, you may feel unsatisfied with a home that should otherwise be quite satisfying.
- Go it Alone. You may be driving down a street and see an open house sign. Nothing wrong with a solo pop-in, right? Wrong. If you’re serious about buying a house, you should always have enlisted a broker or real estate agent before you do any in-person visits to properties. You don’t want to risk getting into any kind of discussion with the seller’s agent without having an agent of your own.
- Fall for a Fixer-Upper. Unless that’s what you want. If you understand the time, energy, budget, and skills that are needed for home renovations and repairs, you can judge whether a home that’s in need of work is worth it. Otherwise, avoid houses with major flaws that you’ll have to fix — distinguishing between what you can fix and what you can’t is an essential tool of house-hunting.
- Succumb to Spring Fever. Much of the motivation behind the surge in home sales we see around Easter is psychological; spring represents change, the cold of winter giving way to warmer weather, bluer skies, and new growth. With greener lawns and flowers in bloom, houses simply look better at this time of the year. And the Easter season could be the best time for you to find a new home. But if not, patience may be your best friend, reminding you summer and fall may also be good times to buy. After all, we are living in a year-round homebuying season.
And no matter where your hunt takes you, from loan pre-approval to closing, City Lending is ready with a big basketful of mortgage options guaranteed to meet your lending needs.
If you are a real estate agent who is helping homebuyers navigate today’s fast-moving housing market, you could probably use a trusted and reliable lender on your side. And City Lending could be the right preferred lender for you, for a whole host of reasons. Let’s delve into a few of these reasons and look at how they can help you sell more homes.
The Importance of Pre-Approval
As you surely know, we’re in a seller’s market — and a red-hot one at that. Most homes for sale get multiple offers these days and bidding wars are all too common. You’ve been in a few yourself and faced off against a selling agent who has ignited a bidding war. So, you understand the importance of a buyer having a pre-approved mortgage in getting a home deal done. We do too. That’s why we’re dedicated to providing a swift and smooth pre-approval process to make home-buying easier for both you and your clients.
Loan Products for Every Homebuyer
As homebuyers are as unique as the homes they seek, we have a wide-ranging selection of loan products to meet a variety of needs. Here are a few you can suggest to your clients.
FHA Loans. These can be perfect for first-time buyers or for those borrowers who might not qualify for conventional loans. Less money down is a big plus with an FHA loan, often requiring as little as a 3.5% down payment for borrowers with credit scores of 640 and higher. All your client needs to do is to show two years of W-2s and pay stubs going back 20 days. And City Lending doesn’t add overlays; we underwrite using FHA guidelines.
ITIN Loans. Chances are you’ve come across a potential client with worries that their immigration status will prevent them from getting a mortgage. But that’s not necessarily the case. Not if they choose an Individual Tax Identification Number (ITIN) Loan Product. Foreign-born people who lack social security numbers may still quality for home financing if they are legally allowed to work in the U.S. Two years of tax returns and two months of bank statements is all it takes to get the approval process started.
Bank Statement Loans. Your roster of clients almost surely includes some people who work for themselves, from small business owners to workers who are a part of the ever-growing gig economy. So, you know the difficulty they can face trying to meet the financial documentation requirements of conventional mortgages. Enter Bank Statement Loans, which use a potential borrower’s bank deposits in determining their eligibility for a loan. With lenient requirements — people with credit scores as low as 620 and debt-to-income ratios as high as 50% can qualify.
VA Loans. If you’re showing listings to veterans or active members of the armed services, they’re likely to be interested in VA loans. These government-backed products have some serious selling points: the possibility of putting no money down, no need for mortgage insurance, eligibility for those with credit scores as low as 600, and more. All with a reasonable interest rate and possible for amounts up to 1 million dollars.
FHA 203k. Whether you have a client who is looking for a fixer-upper or one who just wants to make their new dream home a little dreamier, the FHA 203k Rehabilitation Loan Product might be right. This loan, insured by the Federal Housing Administration, allows homebuyers to finance their renovations — perfect for first-time homebuyers who may go the more economical route of buying a home that needs some work.
Rely on the Support of City Lending
You might not have heard of City Lending in 2014 when we were getting started with a small, but dedicated team. We’ve since grown to have over 200 employees, a success story that’s founded on our dedication to our clients, our investor relationships, and the ever-growing City Lending in-house team. Should you choose to work with us, you’ll be able to take advantage of our considerable resources.
With a dedicated staff of loan processors and assistants, our loan originators are never bogged down with paperwork, leaving those important but often cumbersome details to a team of pros. Who do it quickly. Our compliance team reviews content for turnarounds in 48 hours or less. For you, that means you can count on some of the fastest loan processing times in the lending business. We move so swiftly because we don’t outsource our work, handling everything from processing and underwriting to managing an appraisal roster in-house.
There may be no real estate agent on earth who hasn’t fielded calls from impatient homebuyers, fretting while they wait for the underwriting process to complete. While we can’t make underwriting time go away, we do have the high-tech tools to make it as expedient as possible. These include Optimal Blue, LoanBeam software, the ability to track the mortgage process with SimpleNexus, and access to fast financial verification through Birchwood services.
Fast Closings and Communication
What does all this tech and support staff mean for you? Fast closings, for one. We don’t want financing to linger in limbo any more than you or your clients do. So, we’ve assembled a team of highly skilled professionals and created an unrivaled system to streamline the process. As you probably know, there are lots of things that can spoil a real estate deal. We strive to make sure that financing isn’t one of them.
As with most relationships, communication is fundamental to maintaining a good lender-agent relationship. It’s why we put considerable attention and resources toward promptly answering every call, email, and text from agents. We know that in today’s market, homes sell fast. You need answers fast, to sell that current home and to move on to selling the next one.
Are you ready to consider selecting City Lending as your lender of choice? If so, we’d love to have a chat. Contact us today.