Money Matters: Financing Your New Lake Home

According to the National Association of Realtor’s (NAR) annual Investment and Vacation Home Buyers Survey the typical vacation-home buyer in 2006 was 44 years old and had a median household income of $102,200.No matter what your age or income though, it’s never too early or late to consider fulfilling your dream of owning a cabin or lake property. For many the biggest obstacle to buying a vacation home is pretty simple - money – as in lack of it.However, with some creative thinking, precautionary measures and patience, finding a way to come up with extra money to help finance a cabin or lake property can be done.Here is a look at how to do just that:Creative Financial ThinkingMany people become frustrated or give up on saving money to help finance a lake home because they look at what they earn, subtract current expenses and come to a conclusion that it just wouldn’t be possible to afford a cabin or lake property.“Buying a cabin is not much different then when buying a home,” says Tom Smith, Branch Manager for Bell Mortgage in Apple Valley. “Most cabins can be purchased, if they are year round dwellings, under the same guidelines and constraints as when buying a owner occupied home. Typically the interest rates and programs available will be the same.”However, many mortgage companies do not extend the same consideration to seasonal dwellings. “Typically, what most people do is pull equity from their homestead to pay for the cabin or go to a local bank in the vicinity of the cabin to get financing. Banks are not always subject to secondary market guidelines and will finance the cabins and hold the loans in their own portfolio,” says Smith.That being said, that is still a lot of money to be investing. Taking stock of your overall financial well-being is always a good place to start. If you find yourself looking for some extra money consider these tips:Get a second job, and make sure you put ALL that money in savings. Over the course of a year you could save up to $5,000 to $10,000 – and in two years you could have up to $20,000 – enough for a down payment, and in some areas of Minnesota and Wisconsin, a hefty amount to put down on some prime lakeshore property.Sell unwanted or unused items on eBay or Craigslist.org: People do make money selling their items on eBay – and chances are everyone has something they want to unload. While eBay lets you sell things nationally, Craigslist.org let’s you sell and wheel and deal with local customers in Minnesota or Wisconsin. One Twin Cities seller just recently sold a riding lawn mower, a dehumidifier and an air conditioner that were all sitting in his garage for just over $1,100 by posting a free ad on Craig’s List. Remember one person’s trash is another’s treasure.Consider selling that coin collection or baseball card collection that is just collecting dust in storage.Consider going from two vehicles to one: While it may cause some headaches as far as transportation, using one car will save on monthly payments and insurance.Some life insurance policies allow you to take a cash loan against the value of the policy. Check with your financial planner about that option.Look into taking a loan out from your retirement plan. This is considered a last resort because there are penalties, but if you need a little more money to make that down payment, it is something to consider.Consider buying a cabin or lake home/property with a group of friends or family members. This isn’t for everyone, so make sure all parties are on board and a plan is in place before giving it a go. In addition, there are some everyday steps people can take to make sure they have more access to money and better cash flow, such as:Cutting out cable television and those movie channelsReducing the minutes/package on your cell phoneEat out less – save money by resisting the temptation and eating in!Cut out a few rounds of golf or other social events or hobbiesBus or carpool to work to save on wear and tear on the vehicle and costly gas expensesChange the deductible on your insurance policies to save money (higher deductible’s cost less in premiums) Precautionary Measures and PatienceAccording to the NAR survey the reasons for purchasing a vacation home vary greatly - 79 percent of buyers wanted to use the cabin for vacation or as a family retreat; 34 percent to diversify investments; 28 percent to use as a primary residence in the future; 25 percent for the tax benefits; 22 percent for use by a family member, friend or relative; 21 percent because they had extra money to spend and 18 percent to rent to others.Whatever your reason for wanting to buy, remember this: Getting your finances in place before going to the bank can not only help with the application and approval process, it can help with the amount of money you can get financed, your interest rate, and down payment that may be required.If you already have purchased a home, you are likely familiar with the process. If not, these tips below will help, and act as a reminder for anyone in the hunt:Check your credit report: Make sure there isn’t any outstanding debt or items in collection; and make sure you don’t have any negative marks for late credit card or mortgage payments. Know what is in your credit file and do whatever you can to clean up any bumps in the road before getting financed.Can the Credit Card: Now is not the time to rack up credit card debt. In fact, you want to lower it as much as possible. Lenders look at credit card debt when approving loans. The higher your debt load, the more it looks to an underwriter that you are living beyond your means, and need to use a credit card to get by. Your financial situation looks better with less credit card debt – and so will the interest rate the bank gives youDon’t take on more debt: If you hope to buy a cabin soon, don’t purchase a brand new vehicle with a $500 a month car payment. Don’t add a patio or deck to your house and take out a home equity loan, and most of all, don’t lock yourself into borrowing any more money than you need to live. Underwriters and loan officers look at your debt load as a major factor in the approval process. You may make a great salary, but if you are all tied up and debt, it doesn’t matter how much money you make.Prepare for the unexpected: Sure you might be able to afford the monthly mortgage on a new cabin or lake property, but what about the additional expenses, such as insurance and taxes or assessments. Will you need or want to buy a boat, a dock, pay for utilities and other maintenance on the property you just bought? What if there was an emergency – will you be prepared?Get pre-approved: By learning your credit and financial strengths and weaknesses before you start looking, you will be better prepared to narrow down what you are looking for, and in many cases, save yourself from disappointment because you can’t afford or weren’t financially prepared for the cabin or property you dreamed about. Be realistic, work with a lender prior to starting the process and follow the steps above to help finance that cabin or lake property you once only dreamed about!It can be done, but it may take come creative financing thinking, financial preparation and patience.

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