Working with Vacation Home Buyers

vacation houses

Written By: Gregory Haimes

Borrowers looking to finance vacation homes have specific needs that mortgage professionals should understand. We sat down with industry expert Account Executive, Gregory Haimes to gain some insight on a few of these needs and how to meet them.

Understanding the Vacation Home Market

The market has been on something of a roller coaster ride of late. According to an April 2022 report from Redfin, the demand for vacation homes dropped for a second consecutive month in March 2022, a slowdown many experts attribute to rising interest rates. This diminished demand is still 13% higher than demand was before the coronavirus hit in 2020, but below the peak that vacation-home demand hit in March 2021. The Vacation Home Counties report from the National Association of Realtors (NAR) is an excellent resource for understanding the market.

Consider the Tax Implications

Greg explained to us how some homebuyers may not know the difference between a vacation home and an investment property, as both may be rented from time to time, and considered by their owners a financial investment. You may have to explain to clients that the IRS distinguishes between the two. In order to be considered a vacation home, the owner must use the home for at least 14 days a year and for 10% of the number of days that the home is rented. As vacation homes have different rules for property taxes and taxes on mortgage interest, you should suggest they talk to their accountant or financial advisor about the tax implications.

Discuss Ownership Costs

While some of the costs of a vacation home may be offset by renting the home on platforms such as Airbnb, there may be costs to consider beyond those of a primary residence. If the homebuyer plans to rent out the home about 90% of the time, they may need to hire a management company to maintain the property. According to the NAR, from January 2020 to April 2020, over one in five vacation home buyers purchased a condominium or co-op, so there may be homeowners’ association fees and related costs to consider. The homeowners insurance policy may differ between a primary residence and a vacation home as well.

Networking in a Niche Market

Who are these buyers of vacation homes and where can you connect with them? Data from the NAR shows that vacation homebuyers are more likely to put down higher down payments than other types of homebuyers. Around 75% of vacation homebuyers make down payments of at least 20%, compared to 49% of all existing-home buyers. So you want to target these higher-income buyers and position yourself as a go-to loan originator for vacation homes. That may mean marketing yourself this way on social media, or joining organizations in areas where high numbers of vacation homes are sold.

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