I love being able to help people realize their dream of owning a beachfront condo or home, but it’s frustrating when those dreams fall apart or get delayed by some of the biggest mistakes buyers make financing a vacation home. To help you avoid making those same mistakes, here are some do’s and don’ts to keep your beachfront home investment dreams on track and succeed in financing a vacation home of your own!
HERE ARE THE DON’TS
Don’t buy a high-dollar item
Now that you are about to get a Florida vacation home, are you thinking you should go ahead and buy a center console fishing boat so you can get on the Gulf and feel the thrill of reeling in those big red snapper? Not so fast! Buying any ”big ticket” items like a boat, car, or even spending money for furniture is one of the fastest ways to put the brakes on the loan process for your vacation home investment. Hold off on those purchase until the mortgage closing is done.
Don’t open or close new lines of credit or take out any other loans
It may be tempting to sign up for one of the many offers you get in the mail for a new credit card that includes enough miles for you to fly your whole family down to your new Florida beach home for the holidays. However, wait a bit longer before you get a new credit card and book that trip. Increasing your available credit can throw your debt-to-credit ratio. Hold off on the new line of credit until the ink is dry on your loan and you have successfully financed your vacation investment property. There will be many years for the whole family to enjoy holidays in flip-flops at your dream vacation home or beach condo!
This includes co-signing loans with someone else. On the plus side, you can use this as an excuse to not have to co-sign that car loan with your brother-in-law that you knew you would get stuck paying while he works on his dream of becoming a golf pro. Sorry bro!
And although it seems counter-intuitive, it can actually hurt you if you do an early close out a small loan or revolving credit account after they have already been pre-approved. Don’t do it! Credit scores give positive credit for long term accounts that have pristine re-payment history and even paying off a loan a few months early can make a difference in financing your vacation home.
Don’t change jobs
You can run into problems trying to qualify for a mortgage on a vacation property if you anticipate that you will change jobs before the mortgage is approved and closed, even if the new job pays more money. The mortgage company underwriters, who have final approval of your loan, consider new jobs as a risk. This is true even in the same company if the new job is more dependent upon a variable commission structure. You may need to complete the job change and establish some history in the new job before you can secure your beach vacation property financing.
Don’t switch bank accounts
Although the lure of getting a new toaster for opening an account might seem too great to resist, this is not the time to let a $30 appliance derail your loan process. Lenders like to see consistency and opening a new account can raise red flags for your loan application. Hold off and have faith that there will be another even better free toaster down the road.
Don’t move around any significant sums of money between accounts
This is probably the most common “Don’t” that lenders see from people trying to secure financing for their vacation investment property. Large changes in account balances raise red flags. And, don’t move money from business accounts into your personal accounts. Money transferred from an LLC into a personal bank account cannot be used towards the mortgage down payment until it has “cured” for 90 days, even if you are a single member LLC.
Don’t allow any other companies to run a credit check on you during the loan approval timeframe
Credit checks make mortgage lenders more nervous than a long-tailed cat in a room full of rocking chairs. They assume you are planning other major purchases that may impact your ability to meet your new loan obligations. Wait until you close on your fabulous new vacation home mortgage and then pursue those other purchases if appropriate. While you’re at it, it might be a good idea to wait 3-6 months just to make sure you can meet this new financial obligation in case any unexpected surprises come up.
HERE ARE THE DO’S:
Do meet with your financial advisor to confirm that you can afford a vacation property investment
Before you get all excited about owning your very own beachfront condo and enjoying those glorious sunsets with your toes buried in the sand, sit down and talk to your financial advisor to make sure you can afford this major purchase. They may have some great ideas about using some of your other investments to come up with money for the down payment or a suggestion to use the equity in your primary home to purchase this property for cash. Taking this time up front before you fall in love with your dream vacation home may save you from a major disappointment down the road.
Do meet with one of your potential lenders well in advance of this big vacation property investment
After meetings with your financial advisor, your next visit should be to meet with one or more potential lenders. An experienced lender can help you avoid many of those “Don’ts” above and help you create a short-term plan that will help you qualify for your investment beach home loan. Taking a little time up front will ensure that you will get those toes in the sand and a drink in your hand as soon as possible.
Quickly answer any questions or requests for information from your lender
Let’s face it. Financing a vacation home is not easy. It’s no fun gathering up mountains of paperwork even for the most organized folks. Be prepared to start gathering papers you know your lender will ask for (W2’s, previous tax filings, bank statements, etc) ahead of time and respond quickly to all lender requests. Slow responses from you lead to delays by your lender which lead to annoyed sellers. And if the loan is delayed enough to push out closing costs, there’s no guarantee that those annoyed sellers will be agreeable, particularly in a hot sellers’ market.
Keep paying your bills on time
Don’t let yourself get so distracted shopping for a pair of new beachy shoes that you forget to pay your bills. And while you are at it, get yourself set up on autopay for your bills before you start your condo shopping. It won’t make a difference to your lender whether you use it or not, but it can help make sure you are never late and save a few bucks on postage.
I hope you have found these tips for financing a vacation home helpful. If you have any questions, please reach out to me and I’ll walk you through the process and help you find your perfect Florida beach vacation home or condo here in Panama City Beach or 30A. If you need some help picking out that perfect vacation property in Panama City Beach, FL, check out my blog: How to pick out the best condo to buy in Panama City Beach
And for some expert tips on how to creatively improve your credit score, check out Beverly Harzog's 5 Sneaky Ways to Increase Your Credit Score.