Should you refinance or sell a vacation home?

Posted by  on Mar 20, 2011

Are you struggling to hold onto a vacation home because of high mortgage payments? Maybe you bought the second property when the housing market was booming and paid more for it than you should have. Here are some things to consider when trying to decide whether to sell your vacation property or refinance the mortgage.

Can you afford a vacation home?

Have your circumstances changed significantly since you bought your vacation home? A job layoff, serious medical condition, or other major life changes can make it difficult to maintain the lifestyle you've become accustomed to. Do an honest assessment of your situation to determine if you can actually afford to keep a vacation home, regardless of whether or not you qualify for refinancing. Ask yourself the following questions:

  • Are the monthly mortgage loan payments taking money away from other expenses that are more necessary?
  • Even if you refinance will you still have trouble making the monthly payments?
  • Does your ability to keep a vacation home depend upon renting it out for a certain number of weeks each year?
  • Do you even use the vacation home enough for it to be worth the money being put into it?
  • Do you have enough income to keep up with necessary repairs and maintenance?

Refinancing a second home

Current mortgage rates are so low that it's definitely worth considering a home refinance. Mortgage lenders have gotten tougher with underwriting standards, but don't assume you won't get approved to refinance a mortgage loan on a vacation property.

If you recently refinanced the mortgage on your primary residence you may also qualify for refinancing the vacation home. You need to have at least 20% equity in the home, according to HSH.com. Also, mortgage lenders probably won't approve a second home refinance if your debt-to-income ratio is more than 40% even if you have excellent credit and a healthy income. That debt ratio includes all types of debt -- mortgages, credit cards, home equity loans, etc.

Selling a vacation home?

Maybe you're having second thoughts about keeping a vacation home. Selling it could allow you to get out from under burdensome mortgage payments and free up income for other expenses. Market a vacation home the same way you would your primary residence. Spruce up the place and make necessary repairs, but avoid pouring a lot of money into it. Find an experienced Realtor in the area who can help stage and market the home. When listing it be sure to highlight strong selling points such as nearby recreation areas, tourist spots, entertainment, and amenities in the community.

Ask for a short sale

If your vacation home is just sitting on the market with no takers, consider asking the mortgage lender to accept a short sale. A short sale would allow you to sell the property for less than what is owed. Your mortgage lender may be willing to do this rather than deal with foreclosing on the property. Be prepared to provide a financial hardship letter and documentation supporting your claims.




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