Yes, it is possible to refinance a vacation home or a second home but things might prove to be more complicated and tricky than refinancinga regular residential property.
For starters, many lenders are wary of refinancing nonowner-occupied properties because borrowers are more likely to default on such loans should they face sudden financial setbacks.
To make up for this risk, lenders usually charge higher interest, require a lower LTV ratio, high credit score, and additional income documents for verification in their qualifications.
Furthermore, refinancing a second home is not just about interest rates. There are other factors that you need to be properly aware of in order for your refi process to go as smoothly possible.
A Question of Equity
The higher the equity you carry on your home, the more likely will your refi application get an approval.
In a nutshell, your home equity is the market value of your home minus the amount of mortgage you still have left to pay. For example, you have a home that costs $250,000 in the market and still have $150,000 left on your mortgage payments. Taking the difference, ($250,000-$150,000), your home equity is $100,000.
Typically, lenders require at least 30 percent equity for second home refinances. If you are among the homeowners who benefited from the recent rise in home prices, you may have a good chance of qualifying for a refi.
Finding a Lender
It is advised by experts to find lenders who are familiar with your market. With this in mind, it is best to start your lender search with those in your local area. That includes brokers, banks, as well as credit unions. These professionals are more adept at the market movements in your area and are therefore more equipped to handle a more tricky and complicated second home refi.
Protecting Your Credit
Multiple credit inquiries can hurt your credit score. Get decided first if you are to proceed with the refinance before you forward any refi application. Do not give out sensitive personal and financial information where they are not demanded.