Refinancing a vacation home with today’s low refinance rates can be tricky but it’s not impossible. With traditional, 30-year fixed refinance mortgage rates hovering below 4 percent the payoff can be worthwhile especially if you’re paying six percent or more on your vacation home’s mortgage. Here are several tips to help you qualify for mortgage refinancing on your vacation home without paying unnecessary points or junk fees.
Vacation Home Mortgage Refinancing Made Easy
Many homeowners with vacation mortgages haven’t considered refinancing with today’s low refinance rates because they don’t think they’ll qualify. As a result many are paying more than six percent on a vacation home mortgage, an avoidable expense in today’s market.
The process of refinancing a vacation home is a bit more complicated thanks to the mortgage crisis, but not impossible. To qualify for mortgage refinancing on your vacation home you can expect lenders to ask for significant documentation of income including several years tax returns and bank statements. The inconvenience of providing extensive documentation of your income and assets can be well worth your time as lowering your interest rate by even one percent or more translates to thousands of dollars in savings.
You Need a Favorable Loan-to-Value Ratio
If you’re underwater in your vacation home it’s going to be very difficult if not impossible to refinance your vacation home mortgage. Most lenders are looking for 80 percent loan-to-value, even 70 percent or better in some cases. In some parts of the country like Las Vegas many homeowners are finding they owe double what their homes are worth. Depending where your vacation home is located you can expect lenders to require a recent appraisal of your home’s value as part of the application process.
Mortgage lenders use different standards for approving refinancing for an owner-occupied, primary residence than they do for vacation homes and investment properties. Unfortunately the FHA doesn’t offer mortgage loans for vacation properties and government refinance programs like HARP only apply to your primary residence.
Don’t be surprised if the lender requires Private Mortgage Insurance (PMI) to get your vacation home refinance mortgage application approved. Paying for PMI can add one percent or more to your mortgage payment, an often unavoidable expense in this situation.
Clean Up Your Credit Reports First
Your credit score has a lot to do with getting your vacation home refinanced. This number is the biggest factor in getting your application approved and determining what refinance rates you’ll get. If your FICO score is less than 780 you’ll need to spend some time cleaning up your credit reports. Late payments, collection accounts and judgments all drag down your credit score.
You can make sure mistakes in your credit reports aren’t dragging down your score by visiting the website AnnualCreditReport.com. The three credit agencies of Equifax, TransUnion, and Experian are required by law to provide you with a free copy of your credit report once per year. They will try and sell you a credit score and monitoring service; however, you’re not required to sign up just to view your credit reports.
Beware Common Mortgage Refinancing Mistakes
When it comes to refinancing a vacation one common mistake is to portray the home as an investment property. Investment mortgage loans are generally much more expensive than vacation homes. Lender fees and refinance rates will be lower if you’re upfront with the lender about the use of your second home.
If you have good credit and a favorable loan-to-value ratio mortgage refinancing a vacation home is not difficult, just watch out for unnecessary discount points and fees. Overpaying the loan origination fee for instance or falling for discount points can make it difficult, even impossible to break even recouping your out-of-pocket expenses from refinancing your vacation home.
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You can learn more about getting the best deal on your vacation home mortgage without paying unnecessary lender fees or points by checking out my free Underground Mortgage Videos.
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