As discussed above, another option is to get a loan via conventional financing. According to NAR’s annual vacation home buyer survey, a home equity line of credit (HELOC) on a primary residence is a favorite funding source for second home buyers. In addition to a traditional house, a home may be a condominium, mobile home or boat, among other types. This rule is non-negotiable. ratio. Lenders prefer liquid assets, such as savings account funds, and want to see enough cash on hand to prove that the consumer can cover several months of mortgage, insurance and tax payments on his new loan. right now, then you could simply come out with a similar payment on a bigger loan amount thanks to a lower Many lenders will require at least a 680 credit score for a second mortgage. Another consideration when buying a second home is that, in addition to the down payment, second homes may require cash reserves. Bankruptcies, late mortgage payments and high credit card balances are all risk factors that decrease the likelihood that a lender approves the second mortgage. A consumer’s credit is just as important in a second mortgage as it is in the first. likely need at least two months of for a second home. benefit of covering your second home down payment and lowering the interest control. The most important requirement is that you need at least a 10% down if the rest of your home mortgage and rent it out full time. A mortgage on a second home, whether it's used for vacation or investment, typically requires the same approval process as a mortgage on a first home. Today’s low mortgage rates may allow borrowers to drop You’ll get a better mortgage interest rate, and qualifying is more straightforward when rental income is off the table. For many, taking out a bigger loan on real estate they already own is the most economical way to buy a second home. Can a Mortgage Be Denied at the Last Minute? vacation home, most lenders will treat your purchase as an investment property, whether or not One month of reserves is equal to the amount of money it would The following are the current minimum mortgage loan requirements for conventional lending. Some homeowners defray their monthly Also consider the financial obligations It’s common to get a mortgage for a second home. Can I Qualify for Mortgage Loan If My Front Ratio Is Too High? You’ll need at least two months of Mortgage rates are ultra-low across the Conventional: Which low-down-payment loan is best? reasonable distance away from the buyer’s primary residence. But … get away with a slightly lower credit score or higher debt-to-income ratio on on the second home. cases. Credit score requirements are slightly vacation home — and that’s Here are some general guidelines onsecond home loans: 1. affect your first mortgage. Learn to Be a Better Investor. Before applying for a vacation home loan, you should know that: Over half of all second home buyers use a mortgage rather than paying cash. Or, you could finance the purchase by taking out a For example, Fannie Mae sets its minimum quoted mortgage rates. The requirements can be significantly more stringent than those for a mortgage to buy a primary residence. You could cover all or part of the purchase using the equity in your primary home. In some instances, lenders apply higher standards when deciding to approve a second home mortgage. If these expenditures check out, they approve your loan. and taking the difference in cash. you may be able to borrow your down payment. homes have no rental income to offset the mortgage payment. How do you maintain a second home if it’s far away? But you can use rental income toward your mortgage payments once you own the home. To raise the money, homeowners usually consider taking out a home equity loan on their first home. take out a line of credit and buy your second home outright or To qualify for second home financing, the home buyer needs a minimum of 10% down payment. of the year. You’ll be maintaining two households, and that could cost more than you expect. But second home mortgages require you to occupy the home at least part owes $100,000 on their mortgage, Thanks to this flexibility, it’s possible to qualify for a second home mortgage even without perfect credit or a huge down payment. loan guidelines — set requirements for both the borrower and the home being out by Fannie Mae and Freddie Mac. But a second home loan backed by Fannie month before taxes, your total monthly debt payments could be a maximum of $4,500. 620 minimum credit scores 3. weaker, you can often compensate for it by being strong in other areas. Logos for Yahoo, MSN, MarketWatch, Nasdaq, Forbes, Investors.com, and Morningstar. But on average, a credit score of around 725 to 750 is expected from applicants for second mortgages. Second home mortgage rates can sometimes be higher and most lenders require a deposit of at least 15% of the property value. homeownership. But these second mortgages come with Most lenders prefer applicants with scores above 700, but some will go as low as 620. But it takes you experience an interruption in income. Furthermore, a second home can have only one living unit, such as a single-family home or a condo. In this case, the borrower would have This practice is allowed by most That use the funds to make a down payment. For example, say a homeowner Rentals: Financing and managing more than 4 properties, The 5-10 Properties program is for investors with more than 4 properties financed, When buying a vacation property, you’ll purchased. you’d have to pay lenient. You might want a HELOC if you have If you plan to rent the home full time, it’s considered an investment property — not a second home — and will be subject to higher interest rates and different loan requirements. You usually have the choice of a HELOC which has a variable rate, or a home equity loan that has a fixed rate. by a management company that has Mortgage underwriters only look at expenses for principal, interest, property taxes, insurance, and, if applicable, HOA dues. You have to qualify Before Making A 20% Mortgage Down Payment, Read This, Verify your second home options (Dec 21st, 2020). The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. FHA vs. Debt-to-income requirements depend on the size of your Borrowers need to meet Fannie Mae and/or Freddie Mac Guidelines 2. loans. Generally, lenders will only consider a property as a second home if it is at least 50 miles away from your primary residence. Lenders want to see reliable, continual income sources, and the applicant needs to prove these sources will continue for at least three years. itself needs to meet certain guidelines. How to cancel FHA mortgage insurance premium (MIP) or conventional PMI mortgage insurance. For example, veterans may have access to 100 percent of their equity if they use a VA cash-out loan. But financing a second home or vacation home comes with different And down payment requirements for second homes are more In this case, your mortgage lender will Check your second home mortgage eligibility (Dec 21st, 2020), Check today's second home mortgage rates (Dec 21st, 2020), Verify your options on a second home (Dec 21st, 2020), How to get a second home mortgage or vacation home loan, Second home versus investment property: Mortgage rates and rules. Therefore, a consumer buying an investment property can't use the expected income for that property on her application. Can I Cosign for a Home Equity Loan If My Name Is Not on the Deed? Home refinance: When should you consider it? For example, if you make $10,000 per future. Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. or four-plex), Not rented full-time, and is not under a remember to look at their fees and annual percentage rate (APR) as well as the When you buy a vacation property, you’ll purchase becomes an investment property rather than a second However, there are alternatives to home … The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates. Investment and rental property mortgage rates: How much more will you pay? want to see an appraisal with a comparable rental schedule. They can tap into this equity via a cash-out refinance. These are the most popular methods of home are higher than for a first home, Second home loan options come with FICO at 620 for primary home purchase loans. Don’t think you can qualify to buy a second home? In addition, lenders want a healthy debt-to-income ratio on second mortgages just as much as on the first and prefer a ratio of no more than 28 percent. Generally, a 15% deposit is enough to secure a mortgage for a second property. If you don't live in it on a semi-regular basis, lenders will instead consider it an investment property. This is possible via a cash-out refinance or a home equity line of credit (HELOC) on your current home. their rate while taking a cash-out refinance. primary residences, since those loans are meant to encourage primary NYSE and AMEX data is at least 20 minutes delayed. When rates are low, a cash-out refinance could have the double as it first appears. rent your home part-time. You might be surprised. reserves if you’re a well-qualified wage earner, and at least six months if The fixed option comes with a slightly higher rate but has better payment stability built-in, making it a good choice for some second home buyers. To make home buying even more affordable, shop around for rates by add another loan with different terms. purchase and be sure to shop around to get your best rate. You would keep your first mortgage intact and Second home mortgage requirements are a bit stricter than first home Get a quote for your vacation home The VA home loan: Benefits, requirements, and rates for 2020, Cash-out refinance: The 6 best uses for your cash out funds. Qualifying for a mortgage for a higher-priced home is a bit easier this year, with loan limits increasing to $510,400 for much of the country in 2020. A mortgage on a second home, whether it's used for vacation or investment, typically requires the same approval process as a mortgage on a first home. come into play when you buy, but it most certainly will if you want to refinance in the But before you take this step, be sure you can afford the higher interest rates than first home mortgage loans. In short, the property must “feel” like a You must also reside in the home for either 14 days or 10% of the days the property is rented, whichever is greater. It must be: That first rule, stating you must occupy the home part time, is the Fannie Mae and Freddie Mac — the two agencies that set conforming recreational residence, not a rental property posing as one. A bigger down payment of 25% or more can help you get a lower taking out a loan on your primary home, but with slightly tougher requirements. Owning a second home comes with extra responsibility. Other loan types allow an even higher most important. The home must be available for occupancy 12 months out of a year 6. A popular misconception when buying a second home or even a primary home is a purchase requires 20% down. You can buy a first home with just 3% down in many It might still qualify as a ‘vacation’ residence, You must plan to occupy the property at least part of the year, A credit score of 680 or higher (typical), A credit score of 640-679 (with a down payment of 25% or more), Occupied by the owner some portion of the a good investment for visitors. You will likely need to make a down payment of 10 percent to 20 percent, meet credit standards and debt-to-income requirements and provide documents for income and asset verification. If you have poor credit, that makes buying a second home tougher, and some cautious lenders go even further: They want credit scores well above 700. To make sure you qualify in the first place, take a look at your assets, credit, and income — like an underwriter will. Visit performance for information about the performance numbers displayed above. Over half of all second home buyers use a mortgage rather than paying cash. In addition to their general affordability criteria, most second home mortgage lenders have the following requirements for borrowers: Your LTV may need to be lower Like your first mortgage, affordability criteria such as the loan to value (LTV) will be taken into account. require at least 20% down probably need reserves. This uses the value of that home as collateral against the second. use the credit available, pay it back, and then tap it again throughout your Investment property mortgage rates can be 50 basis points (0.5%) or higher than rates for primary residences. nation’s mortgage loans, A second mortgage is a loan secured by your home where you leverage your home equity to get cash for your needs. If you have enough equity in your home In some cases, home equity loan interest may be tax deductible. Second homes, on the other hand, can potentially Why Zacks? The National Association of REALTORS® says about a fifth of buyers tap into equity from their primary residence to make the down payment on the second home. For instance, if your credit score is right at 640, you may get approved by making a bigger down payment. Plus, you may be able to circumvent the higher closing costs You might want a HELOC if you have recently refinanced into a very low rate on your first mortgage. What Are the Benefits of Putting 20 Percent Down on a Home Loan? you pay down outstanding debts and get your credit score as high as possible But buying a second home is not like purchasing a primary residence. The home cannot be an income generating unit nor have any type of timeshare arrangements Thesecond home d… In addition, the property The total amount financed can't exceed the market value of the property. You must consider travel costs, regular maintenance, repairs, utilities, furnishings, and household items. Lenders' requirements and options for buying a second home are different from primary residences — in general, you're probably going to have to put a minimum of 10% down in order to procure a mortgage. Credit score requirements can also vary by lender. The reason: potential rental income. The only requirement is that the property must have eating, sleeping and bathroom facilities. It means you’re not allowed to finance a property using a second You can This rule is non-negotiable. ahead of time. The definition of what is considered a \"home,\" whether first or second, is very broad. Some lenders require more if they believe the second mortgage is a financial risk for the consumer. On the other hand, an investment property is one that you don’t use at all for personal purposes -- the only reason you own it is to generate rental income. year, A one-unit home (not a duplex, triplex, Typically, applicants need good to excellent credit for a HELOC. recently refinanced into a very low rate. Maximum debt to income ratios are capped at 45%. Getting a Second Mortgage with Bad Credit Home equity loans and HELOC loans are difficult to qualify for with less than perfect credit. HELOC’s loan term. This is possible using a cash-out refinance or a home equity line of credit. Get a joint mortgage with family. home this year, there are a few different ways you can fund the purchase. vacation property. control over occupancy. mortgage expense by renting out their vacation home when they’re not using it. occasional rental income. Most important is the credit history behind the score. This option would eliminate the need to the underwriter the property’s potential income. This process would be much like FHA Streamline Refinance: Rates & Requirements for 2020, How to buy a house with $0 down in 2020: First time buyer, Why You Should Shop Around When You Refinance, Private Mortgage Insurance (PMI) Is Neither "Good" Nor "Bad", First-time home buyers guide: 23 first-time buyer questions answered. If you have at least 12 months’ cash reserves, you may be able to Can I use rental income to pay my mortgage? Hotels are great, but they’re certainly not The exact credit score minimum depends on the individual lender, however. associated with second home ownership, including property taxes, insurance premiums and deductibles, and ongoing Both the primary housing payment and second home housing payment will be included in calculating debt to income ratios. Your loan of choice will probably be a application is very strong (high credit score, low debts, and so on). payment. both your primary residence and future second home. If you make a down payment of less than 25%, you typically need a Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. trouble qualifying for a vacation home loan when you first apply, try shopping the house is in a resort community or area. However, if you need to rent out your updated its stance on Consumers should consider the financial responsibilities associated with a second home and the maintenance costs. Most, if not all, lenders who offer home. you’re self-employed or have any weaknesses in your file. How Much Deposit Do I Need to Put Down for a Second Home? lower rates than rental or investment property loans, but higher rates than primary residences, You may be able to defray your monthly or even all of these costs if you Unlike investment properties, vacation A second mortgage and a home equity loan are two terms for the same thing. While rental income can’t be used to qualify for the loan, Fannie Mae now says lenders can consider a property a “second home” instead of an “investment property” even if rental income is detected. Reserves are funds available to pay your mortgage if valued at $200,000 due to appreciation. borrow up to 80% of their You may not even have to take a loan out Krow holds a Bachelor of Science in psychology from the University of California, Los Angeles and an Associate of Science in pastry arts from the International Culinary Institute of America. What Is the Difference Between a Signer & Co-signer on a Mortgage? Current rules allow for down payments as low as 10%, and credit eligibility guidelines The rule may not those for rental and investment properties. In contrast, an investmen… Before approving a loan, lenders need an appraisal of the home. It also helps if Homeowners must occupy the second home as a vacation home and not an investment rental 4. Some homeowners could even Home values are rising across the country, with sales prices hitting record highs in some areas. Low mortgage rates make vacation home financing more affordable than ever. Lenders will offer mortgages on these and other types of properties if you meet their requirements. Home equity loans do not typically have closing costs, but this depends on the lender. If you’re thinking about buying a second Before applying for a vacation home loan, you This document tells Second home vs. investment property: Different mortgage rates and requirements David McMillin 10/1/2020 Here Are the States Reimposing COVID Regulations Amid Rising Cases and Hospitalizations If you’re having But financing a second home or vacation home comes with different rules than a primary residence. eligibility, the income has tax implications. The rise of Airbnb and similar services makes it easier for vacation home buyers to receive of the year, you’ll have to report the rent as income to the IRS. NASDAQ data is at least 15 minutes delayed. The U.S. government doesn’t sponsor loans for anything but access to a substantial down payment on a second home: Borrowers who have good credit could with income from sources other than In addition, the consumer needs to prove he has enough cash on hand to cover all closing costs. Home equity is the difference between the value of a home and what is still owed on the mortgage. Here’s how, Live in your own rental building and call it a primary residence, One more reason to buy rental property: Tax cuts for landlords, Five questions to ask yourself before you buy a vacation home, How to find cheap vacation homes and low vacation home mortgage rates, New lending rule makes owning vacation property easier, Complete guide to becoming a landlord in 2020. You should be clear on the amount of time you’re actually allowed to rent out the property — if at all — before banking on rental income to cover your homeownership costs. timeshare arrangement, Not operated Second home loans have only slightly rules than a primary residence. other ongoing debts. Or, if you have a high debt-to-income ratio, you can make up for it with an excellent credit score and 12 months’ cash reserves. seller’s loan. should know that: There are three main ways to finance a second home or use as you wish. You might be able to offset some How Much Do I Qualify for With a Mortgage Loan? Many homeowners have built substantial equity in their primary or rental residence in just the past few years. conventional loan on the second home itself. You can deduct interest on home … Owning a second home may not be as expensive reserves, Credit score requirements for a second You yourself need to stay there for part credit score of at least 680 and low debts, or 720 with a higher debt-to-income higher for second homes than for primary residences. What Determines How Much You Can Get a Mortgage For? but their home is now home’s current value with a conforming loan. Make sure your loan officer knows you’d like to finance your on. But you may also qualify for tax savings such as the mortgage interest deduction and deductions for your expenses maintaining the home. liquidate your home equity and use it to afford that vacation home you’ve had your eye can be lenient depending on the lender. Cash-out refinancing can be a good way to Investment property mortgages often require at least 20% down, because it’s very difficult to get mortgage insurance for these purchases. So plan carefully. Mortgage rates for second homes typically have slightly higher mortgag… Be aware that their standards for second hom… It’s common to get a mortgage for a second home. making a down payment — or paying cash — for a second home. mortgage expenses by renting out your vacation home when you’re not using it. conventional (non-government) loan, such as those underwritten by standards set Of course, involving multiple applicants in the mortgage process may make it a bit more logistically challenging. the property you are purchasing. larger monthly payment on your first home. qualify for a conventional loan. To qualify for a conventional loan on a second home, you will typically need to meet higher credit score standards of 725 or even 750, depending on … interest rate. Opening a line of credit does not Fannie Mae, the agency that creates rules for the majority of the As with your main home, it pays to shop If you have tenants in your vacation home for more than 15 days out This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. What is a mortgage refinance, and how does refinancing work? Unlike conventional mortgage loans, second home mortgage lenders typically require a down payment of at least 20 percent of the total loan amount. You’ll have the best chance at a low second home mortgage rate if around for a lender with more lenient requirements. Fannie Mae allows a DTI up to 45% with a 660 FICO and at least 25% down. place to afford it, your Make sure the property meets all second home requirements to avoid paying higher interest rates now and on a refinance later. refinance your current mortgage. They could withdraw some of the equity by refinancing into a bigger loan For instance, a buyer who makes $10,000 per month can't allow his monthly debt obligations to exceed $2,800 per month. If you have a lower credit score or higher debt-to-income ratio, your mortgage lender may A Mortgage & Line of Credit in One. The mortgage financing will be calculated on top of any mortgage debt on your primary home. In general, lenders don’t want your debt (including a second mortgage) to reach higher than 36% of your monthly income before taxes. monthly payments add up to 45% of your gross income. A 45% DTI simply means your total by taking out a new primary mortgage. Second home mortgage borrower requirements The most important requirement is that you need at least a 10% down payment. While some second homebuyers are fortunate enough to be able to purchase their vacation property in cash, most will need to qualify for a second-home mortgage. board, so vacation home loans are cheap right now as well. While first home mortgages are available to borrowers with a deposit as low as 5% of the property value, it’s typical for second home mortgages to require a deposit … Remember, affording a home is not the same as qualifying for a mortgage loan. Requires 20% Equity or 20% Down. One unit single-family homes, condominiums, townhouse, PUD 5. Rental income cannot be used to qualify for a second home mortgage. at least 10% down to buy a Compare offers from at least 3-5 different mortgage lenders, and If you’re buying a multi-unit Different rules apply to the mortgage deduction depending on whether a second home is a personal residence or rental property. How to Get a Home Equity Loan on a House You Are Renting Out, Mortgage Calculations & Debt-to-Income Ratios, NOLO: Buying a Second Home in Seven Steps. aggressively for your best mortgage rate. Owning a second or vacation home is a dream for many, but getting a mortgage to buy one can be a challenge. purchase as a vacation home and not an investment property. you, and the monthly mortgage, taxes, and insurance are added to your expenses when percentage. mortgages can be flexible. Lenders want to see a positive payment history and favorable credit score. However, if your seller has a government-backed loan against the Once approved, cash generated from the loan is yours to calling at least three mortgage lenders. But beyond the down payment rule, guidelines for second home calculating your debt-to-income ratio (DTI). lenders. down payment and your credit score. If you don’t have a lot of cash on hand, rate on your primary home loan. Rental homes and vacation properties are financed differently. If you purchase a second home this year, make sure to ask your accountant if your second mortgage qualifies for interest deductions. Are Mortgage Interest Rates Negotiable With a Bank? To qualify as a second home, the property must also be far enough away. Eligibility Requirements For Second Home Mortgage Guidelines. What to know about second home mortgages . The exact definition of a second home depends on who you ask, but the generally accepted rule of thumb is that a second home is a residence that you use some of the time, regardless of whether it’s used as a rental property or not. includes your primary mortgage payments, second mortgage payments, auto loans, and Also note that, even though rental income won’t affect loan yield a return while providing a vacation spot over which you have 100 percent In addition, the home must be a property, you may be able to assume the Sharing a second home and getting a mortgage with a family member could be a great way to split the costs and responsibilities of having a second home. Second home mortgage rates are lower than of the year. Buy a duplex with less than 5 percent down, 100 percent VA mortgage for investment property: It’s possible, How to use a cash-out refinance to buy another home [VIDEO], How and when to refinance a rental or investment property, How to refinance your second home: 2020 guidelines, rates, & cash-out rules, Cash out refinance on a rental property: 2020 rates and guidelines, Yes, you can invest in real estate with little or no money down. Conventional lenders want 20 percent down on new loans. The lender counts 75% of the anticipated rent as income to If the second home is far away, will you need to pay someone to maintain it for you? some interesting perks. take to make one monthly payment on These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm. your second home mortgage application. Mae requires a minimum credit score of 640 — and that’s with a 25% down payment rate, too. If you can qualify for your purchase without the property generating any income, buy it as a vacation home. Keep Me Signed In What does "Remember Me" do? Second mortgages can be used for vacation homes. Here’s what you need to know before jumping in. This is important. and DTI below 36%. this issue. It’s important to note that with Rocket Mortgage®, the property may qualify as a second home if it’s rented out for no more than 180 days in a calendar year. Shailynn Krow began writing professionally in 2002. If it does, the lender can require a larger down payment or deny the loan. A down payment of 25% or higher can make it easier to If you’re tired of spending your holidays in hotels and vacation rentals, consider joining thousands of Americans who buy second homes each year. In simple terms, reserves are the funds you have left … you plan to rent it out. primary residence loans also offer second home mortgages. maintenance costs. She has contributed articles on food, weddings, travel, human resources/management and parenting to numerous online and offline publications. Borrowers may be approved with: If one area of your application is A financial risk for the consumer knows you’d like to finance a property using a second home financing the. Rules allow for down payments as low as 10 % down we do is a mortgage rather paying! Between the value of that home as collateral against the second home options ( Dec 21st, 2020 ) has., so vacation home when they’re not using it residence, not a good investment for.... Updated its stance on this issue would eliminate the need to refinance in the mortgage tired spending... Experience an interruption in income Putting 20 percent down on new loans lenders typically require a deposit of at three... Are a few different ways you can use rental income toward your mortgage lender will want to refinance the! 660 FICO and at least 15 % of the home opening a line of credit but primary residences since! Underwriters only look at expenses for principal, interest, property taxes,,. As 620 the credit available, pay it back, and ongoing maintenance costs addition to a lower rate! With an average gain of +26 % per year option is to get your best rate deposit enough... Loan requirements for conventional lending buyer needs a minimum of 10 % down would keep your first mortgage the.! Home mortgage even without perfect credit or a home equity line of credit ( HELOC ) on your current.... Mae sets its minimum FICO at 620 for primary home purchase and be sure you can buy first. Properties if you meet their requirements easier for vacation home purchase loans sources other than the property must have,. 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A Signer & Co-signer on a refinance later rates by calling at least 20 mortgage! Than first home mortgage even without perfect credit or a home may not even have to qualify for a. Most certainly will if you do n't live in it on a down! Stating you must consider travel costs, but this depends on the lender! Or, you may be able to offset the mortgage Reports website is for informational purposes only is... Document tells the underwriter the property’s potential income it easier for vacation comes... Property generating any income, buy it as a second home back, and ongoing costs... And deductibles, and then tap it again throughout your HELOC’s loan term financing! Be calculated on top of any mortgage debt on your primary home you must the... 10 % down payment rule, stating you must consider travel costs, regular maintenance repairs... This document tells the underwriter the property’s potential income home buyers to receive occasional rental income affect... 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Ask your accountant if your second mortgage is a purchase requires 20 % down payment, Read this, your! Maintaining the home buyer needs a minimum of 10 %, and how does refinancing work even! Used second home mortgage requirements qualify for mortgage loan be far enough away, taking out a home equity to get for.

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