The pandemic of the past few years has kept people in their homes much more often than most would prefer. Instinctually, many are looking around for alternative lodgings to go when they want to escape the inside of their own four walls and the weariness of outside social distancing. If you want a secluded spot to better enjoy life in these crazy COVID days, a cabin in the woods might be the solution. If you’re wondering how to finance such a purchase, the good news is that there are mortgages to pay for cabins.
In American vernacular, we use “cabin” to mean anything from a small rural house to a log structure to a primitive building of any sort. When it comes to mortgages, cabins are considered vacation homes. That determines the kind of financing you can get.
Depending on the price of your desired getaway, you might be able to refinance the mortgage on your primary residence to pull out equity. Called a cash-out refinance, it allows you to make a new loan of up to 80% of your home’s value. After subtracting your previous mortgage balance, you are left with cash that you can use in any way you like. If you have substantial equity, a cash-out refi may provide you with enough to pay for your vacation cabin outright. If not, it could be a big down payment on a vacation loan.
You could also use a home equity line of credit (HELOC) to pay for your cabin. A HELOC functions like a credit card, allowing you to pull out as much or as little as you like up to a certain limit. You could pull out a large lump sum to outright buy or finance your vacation spot. After about 10 years, you will not be able to pull out any more money and you will need to repay the loan to the lender.
Second Home or Vacation Mortgage
There are home loans specifically for vacation properties. In order to qualify, you’ll have to plan to occupy the home for more than 14 days a year. You should also expect higher interest rates, credit scores, and down payment requirements than on your first mortgage.
If you are planning to build a cabin from scratch, you’ll need an entirely different type of loan. A construction-to-permanent loan basically acts like a line of credit while the home is being built. You can pull out money to pay for materials and contractors after lender-ordered inspections are complete. Until the cabin is complete, you will only be responsible for making interest payments on the money paid out by the bank. Once the property is finished, and an appraiser has made a final inspection, the loan rolls into a traditional mortgage, with principal and interest due in amortized payments each month.
While it might require a little more work or research than a primary residence mortgage, there are plenty of ways to finance the cabin of your dreams.