With the mortgage crisis taking place last year, fewer people had the chance to buy their dream vacation homes.
However, lenders are now willing to finance second homes. Borrowers must still be patient, eminently qualified and strategic in choosing their vacation homes.
“People are beginning to see some opportunities, but they have to be strong borrowers,” said John Walsh, President of Total Mortgage Services in Milford, Connecticut.
Mr. Walsh added that the improving condition of borrowers comes mostly from vacation home prices, not in any relaxation in lending standards. The lower loan amounts, as well as lower prices made it easier for many people to afford a second mortgage payment.
Fannie Mae and Freddie Mac, the US owned companies that effectively dictate the lending mortgage standards, have tightened the requirements for a second home.
The borrowers must now have minimum credit scores of 660 and a 20 percent down-payment in order for them to qualify. About a year ago, borrowers only needed 620 credit scores and a minimum down-payment of 10 percent.
While most borrowers face serious scrutiny, lenders consider second mortgages as riskier than those with primary home loans.
Ellen Bitton, CEO of Park Avenue Mortgage in Manhattan, noted that because the loan requirements were flux last year, many lenders opted not to take the risk on second-home mortgages, fearful of being forced by Fannie and Freddie to purchase back the loans if mortgages were not underwritten precisely in accordance to its specifications.
“It is better today,” Ms. Bitton said, “because at least there’s movement on deals. Lenders have been more willing to process loans on vacation homes since October.”
However, pitfalls remain. Mr. Walsh stressed that borrowers who seek condominiums face smaller odds of success. For instance, if the renters’ share in a condominium is over 30 percent, lenders will not offer a mortgage.
“Condos are a big red flag in general,” Mr. Walsh said. “And if it’s a second home, it’s even worse.”