You can finance the purchase of a recreational vehicle with a loan from a bank, credit union or finance firm. However, loan terms are often capped at 10 years and many institutions only offer financing to the most creditworthy borrowers. Consequently, you may get a lower monthly payment and find you have more borrowing options if you finance your RV with a home loan.
When you take out a home equity loan, you cash in the equity you have built up in your home. Depending on your lender and your creditworthiness you can usually leverage between 80 percent and 100 percent of your equity. If you have an existing first mortgage, you can borrow the difference between your available equity and the balance of your mortgage. Your lender may order a full home appraisal or use an electronic valuation model to determine the value of your home. If you have sufficient equity to finance your RV then you can actually purchase the RV with cash because the RV dealer has no involvement in the home loan process. Some dealers offer favorable terms to cash buyers so you may save some money on the transaction.
Lenders view RVs and other vehicles as depreciating collateral because vehicles eventually become obsolete. The useful life of a home is much longer than that of a vehicle and rising land costs actually cause many houses to appreciate in value. From a risk perspective, a lender has more chance of recouping its losses if you default on a loan attached to appreciating rather than depreciating collateral. Consequently, rates on home equity loans are usually lower than on RVs. You must provide your lender with a warranty deed to prove you own the home and evidence that you have insured your property. Your lender will also review the home appraisal and tax records to ensure your home represents suitable collateral for the loan.
Debt To Income
Regardless of your credit score, you cannot get a loan if you lack the means to repay the debt. Your lender calculates your capacity to repay a loan by dividing your monthly debt obligations into your gross monthly income. Lenders usually cap debt-to-income ratios at between 30 percent and 50 percent of your gross income. You can use retirement income, salary and bonuses to qualify for a loan. Some lenders allow you to use dividend and rental income to boost your DTI ratio. Typically, you must provide your lender with copies of your tax returns and W2s in order to substantiate your income. Your lender checks your debt levels by ordering your credit report.
You can use a home equity loan for any legal purpose so you do not have to provide your lender with any information about the RV you intend to buy. You can sell your RV without having to repay the home loan. On the downside, you stand to lose your home rather than your RV if you fall behind on the loan payments. Additionally, some lenders tout the tax benefits of home equity loans since you can usually claim tax deductions for interest payments. However, you can also claim tax deductions for interest payments on many types of RV loans.
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