Florida Vacation Home Funding Options
First, be sure to verify with your lender or banker to see how this vacation home investment would work for your family’s financial condition. That said, you should consult with your tax advisor. Like a primary residence, a Florida vacation home needs the same process of due diligence to ensure a smooth process so you can begin to look at houses.
As with any other home investment, you can borrow money the same for a vacation home. Typically, Florida vacation home buyers utilize the equity in their primary home to finance a second home. Of course, you can always pay cash too.
Home Equity Line of Credit (HELOC)
If you have adequate equity in your primary residence, it is likely for you can borrow against it for a second home. The home equity line of credit allows homeowners to tap into their home’s equity when you need it. This type of loan typically has smaller interest rates, is easier to qualify for, and adjusts based on current market conditions.
The more conventional financing method is a second home mortgage. It’s centered on your income, credit score and down payment just like any other traditional loan.
Where a vacation home or second mortgage contrasts is the down payment is usually larger than what you probably put down on your primary residence. Owner-occupied purchases can require a down payment somewhere between 0-20%. Second mortgage financing is likely to be in the 25% or more down payment range. This happens since the lender is at greater exposure on second mortgage and wants the vacation homeowner to mitigate that burden by having more upfront down payment.
Florida Vacation Home Insurance
Insurance is another aspect of the Florida vacation home process that is important to examine. It’s a good idea to gather a few insurance estimates for the area you plan to buy in.
Purchasing a second home in certain locations require specific types of insurance. For example, flood insurance might be mandatory if you’re at the beach or near a river. The Federal Emergency Management Agency (FEMA) ranks locations based on their probability of flooding, and you can buy insurance to cover it, but it is pricey.
Most insurance companies will also charge you a premium on a home you don't live in for the same reason that a bank wants more down payment. There's a higher danger to a property you don't live in and there is a greater chance of damage. Do your insurance research and ask lots of questions.
HOA Fees for Vacation Homes
If you bought your full-time home in a development, you might be acquainted with homeowners’ associations (HOA). Their fees typically include features such as pools, tennis courts, common areas, clubhouses, and lawn maintenance.
The fees can vary from a few hundred dollars annually to thousands if it includes expensive features like golf courses. It’s something lenders will consider as an ongoing cost since you are required to pay it in order to live in the HOA. All over Florida, there are communities with HOA’s, so it’s best to be aware of all costs that are part of the community living.
Homeowner’s Associations Have Lots of Restrictions
Make sure you get a copy of the HOA agreement to read and review, so you realize the restrictions. Parking is normally a big deal when considering vacation spots. High rise, beach condos can have limited parking, so you need to read and understand what you’re buying. Also, if you are intending to use this as an income property, make sure renting it out is allowed by the HOA. You don’t want any surprises after you close on the sale.