For many people, buying a vacation home might seem totally out of reach. You might think this is something only the richest people can afford to do, but actually, many people are able to own a vacation home. Hundreds of thousands of vacation homes are purchased every year, and the median household income for vacation buyers is only $89,900. Purchasing a vacation home is well within your means, but can you use home equity to buy a vacation home? Here’s everything you need to know.
How can you get the money for a vacation home?
One of the simplest ways to get the money for a vacation home is to use the equity from your current home. By refinancing your home, you’ll be able to afford the vacation home of your dreams. There are many advantages of refinancing for renovation or a vacation home. Refinancing is basically replacing your current loan. When you refinance, you’re often able to secure a better interest rate, which means you’re saving money on your previous home loan. You’re also able to borrow more on top of this loan, which gives you cash for the purchase of a vacation home. This is called a cash-out refinance and is a great way to use your home’s equity for a new purchase.
When you refinance, you can also change the length of the loan. This makes refinancing a great idea because you’ll get a better interest rate, a shorter loan period, and money for your vacation home.
How does a cash-out refinance work?
A cash-out refinance allows you to refinance your mortgage for more than you actually owe on your home. This means you’re able to receive the difference in a cash payment. You cannot cash out for the full value of your home, but you can get pretty close. Most cash-out refinances allow you to receive eighty to ninety percent of your home’s equity. But this doesn’t mean it’s that percentage of the purchase price – it’s that percentage of what you’ve already paid towards the home. In other words, if you’ve paid $100,000 towards your home, you’ll be able to refinance your loan to include a cash-out amount of up to $90,000. This would provide you with plenty of money to go towards your new vacation home.
What vacation home should you get?
Now that you know how to get the cash for your vacation home, you should decide what type of vacation home you’d like to purchase. First, decide where you would like your vacation home to be. Do you want it to be close by so you can visit on weekends? Or are you thinking of an international getaway home? If you love being close to water and nature, consider an Alaska fishing lodge or a beachside home. If you currently live in the country, you might love owning a smaller home or townhome in an urban area like Rome or New York City. Do you love the idea of being off the grid when you’re in your vacation home? Look for a gorgeous log cabin in the woods or mountains. If you’re buying your home for you and your family, talk with your family members and decide where you all would love to vacation. After all, you’re purchasing a second home. It should be somewhere that you’ll all want to visit for years to come.
Buying a vacation home isn’t just for the rich and famous. With an easy home refinance, you’ll be on your way to buying that perfect vacation house in no time.