Vacation Home Financing a Challenge by Jim Woodard on Creators.com

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Vacation Home Financing a Challenge

The hottest seasons for vacation home sales are spring and summer. You may now be planning such a purchase, but be aware of the challenge you may face when shopping for a mortgage loan.

Many vacation home buyers are finding tougher underwriting requirements and other obstacles when seeking a financing loan — tougher than loans to finance primary residence homes.

"Many popular vacation home destinations are in the same markets where property values tanked during the housing downturn and have yet to stabilize," MarketWatch reports, as quoted by the National Association of Realtors. "Some lenders say they're concerned about underwriting mortgages in areas where prices could fall further.

"In other cases, lenders won't approve mortgages if they receive a shaky appraisal report — for instance, one that includes sale prices from other towns when there's a lack of comparable transactions in the neighborhood the applicant is buying into."

Mortgage lenders weigh the financial health of the homeowner's association where the home is located, and they may be more apt to deny a person a loan if many existing owners in the neighborhood are behind on their dues or if there are several homes that are unsold in the area — even if the borrower has stellar credit, according to reports.

Lenders are less willing to provide private jumbo mortgages on vacation homes —loans above $417,000 in many parts of the country, the MarketWatch article noted. Lenders are also being stricter with vacation home buyers, passing on higher mortgage rates—perhaps a quarter of a percentage point higher — to these borrowers compared to those applying for a loan to buy a primary residence.

Also, lenders may require larger down payments than they would on a primary residence. In some cases, that can range from 30 percent to 60 percent, the report noted.

Don't let these potential problems deter you from acquiring your vacation dream home. Prices in many markets are still at affordable levels and mortgage rates are so low buyer demand is up and rising for vacation properties. It should also be noted that more buyers are bringing cash to the deal to avoid mortgage obstacles.

Q: Are home values still rising?

A: At last report (January), home values posted their biggest annual increase since July 2006, beating national gains in rent, according to a recent report from Zillow.

Their index rose for the 15th straight month to $158,100 in January 2013.

The improvement represents a 6.2 percent year-over-year gain and a 0.7 percent increase from December 2012. The winter season, however, slowed gains for the Zillow Rent Index, which was down 0.2 percent from December, but still 4.3 percent higher compared to a year ago.

Q: Where are rental prices rising most rapidly?

A: California cities claimed seven spots on a top 10 list of cities experiencing the highest rental price increases for three-bedroom, single-family homes, according to RentRange, an informational site on rentals.

The site observed changes in rent prices for three-bedroom, single-family homes located in cities with at least 25,000 residents.

Q: Is the foreclosure crisis nearing an end?

A: It appears so. Foreclosure starts dropped to a six-year low in January, another strong indication that the housing market is recovering and the worst of the foreclosure crisis is behind us, according to a report from Real Trends.

Driving the decreasing foreclosure activity is rising home prices, pulling more troubled homeowners back from the brink of foreclosure. Also contributing are the numerous foreclosure prevention efforts at the national, state and local level.

"While both of these are certainly helping to speed the descent, the fundamental factor driving the drop in foreclosures is better lending guidelines," the report noted.

Q: How will the low supply of available homes affect the market?

A: The housing recovery has barely begun, yet some experts say home prices are at risk of overheating because the inventory of existing homes is shrinking, it was reported by Real Trends. "This year's house-hunting season may reveal if steady price increases last year can induce enough people to sell their homes to meet rising demand."

"We're not sure what's going to happen this spring," said Walter Molony, a spokesman for the National Association of Realtors.

The number of existing homes on the market fell 8.5 percent in December from the previous month. That's the lowest in nearly 12 years.

Inventory is 22 percent below a year ago and considered even tighter for low-priced homes. In the meantime, sales are up 13 percent.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.