You may be able to buy a second home by looking at financing alternatives which offer creative paths toward getting lender approval. The following information is excerpted from the book "How a Second Home Can Be Your Best Investment" by Tom Kelly and John Tuccilllo.
1. Real Estate IRA Self-directed IRAs are not only relatively easy; they're also not subject to some of the guidelines that apply to employee-sponsored qualified plans enforced by the U.S. Department of Labor. You can put self-directed IRA money into a wide range of investments, including stocks, bonds, mutual funds, money market funds and real estate. Buyers need only designate the amount of their retirement funds that they wish to use in the property deal and open a new IRA account with an independent administrator. The guidelines covering real estate IRAs are stringent. Sources to check for more information include www.midoh.com; www.oarlock.com; www.entrustadmin.com and www.creonline.com.
2. Seller Financing An extremely common down payment method has been taking a sizable draw from a home equity line of credit secured by a principal residence. However, that is not always an option. Instead, the seller of the second home can agree to "play the bank" and work out private financing with the buyer. The parties are free to negotiate terms, including down payment amount and the loan's interest rates.
3. Lease Option If you just aren't ready to make the commitment to a second home, but don't want to risk losing a good buy, you may be able to rent or lease with an option to buy. A lease option can give you time to research the area while getting a portion of the monthly rent credited toward the down payment.
4. Pick a Partner Another popular option is two families, couples or individuals can combine assests and purchase the property as partners.
5. Equity Sharing The partner process also works for investment property and sometimes is known as equity sharing. In investment property, a cash-poor buyer who knows of a good investment may seek a partner to front the down payment. The two form a partnership to share the profits of the purchase. Generally, there are three principals involved in an owner-occupied situation - a lender, an investor and a buyer.
6. VA Loan While federal regulations require that all loans insured by the U.S. Department of Veterans Affairs (VA) be used only to acquire a primary residence, veterans of military service may purchase a second home using a VA loan guaranty. "The VA requires that you move into your home in a reasonable amount of time and that you keep it as your primary residence," according to Paul Johnson, VA loan specialist for Washington Mutual Bank. "If those are your intentions at the time you apply for the loan, then there is nothing to keep you from using your VA guaranty to purchase a [second home]."