May 11 2022

Financing Options That Broaden Your Clients’ Home Buying Potential

Let’s look at some niche mortgage products targeted at specific types of homebuyers that real estate agents can help educate their clients about.

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. 

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.


What is your financial situation?

Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?


Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?

In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.


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Written by Alicia Christopher

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