By AnnaMaria Andriotis

Vacation-home sales are up, but fewer people are buying them with a mortgage.

Roughly 42% of vacation-home buyers paid all cash in 2011, according to the latest data from the National Association of Realtors. That’s up from 36% a year prior. And while that means more than half of purchasers still take out mortgages, a combination of tighter lending standards and pickier sellers continues to chip away at the figure. In fact, real estate experts say buyers who need to finance vacation homes increasingly get shut out altogether. “It’s not impossible, but you are at a disadvantage,” says Keith Gumbinger, vice president at HSH Associates, a mortgage-data firm.

Median sales prices for vacation homes fell 19% in 2011 to $121,300 due in part to the oversupply of vacation homes on the market. As homeowners become more anxious to sell, they’re passing on offers from buyers with mortgages if all-cash offers are made as well, says Gumbinger. With cash buyers, there’s more certainty for the seller: the sales transaction tends to happen faster and isn’t dependent on a bank coming through with a mortgage.

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Separately, lending standards for second homes have grown far more strict than requirements for primary residences, and show no signs of easing. Banks demand higher down payments and place strict limits on how much debt these buyers can incur. A growing number of vacation-home buyers are already feeling the heat: About 55% of borrowers in 2011 said getting a mortgage was harder than they expected, up slightly from 51% the year prior, according to the NAR.

The biggest challenge, experts say, is coming up with the down payment. While buyers can get the keys to their primary home with a down payment of 10%, they’ll need a down payment of at least 20% to 25% for a vacation-home mortgage, says Gumbinger. On an attached vacation property, like a condo, townhouse or row house, lenders may require as much as 30% down.

For their part, lenders say bigger down payments are needed to minimize the chances of the home going into foreclosure. When borrowers pump a significant amount of money into a vacation home, they might think twice about walking away from the property, says Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington D.C. And lenders are more reluctant to give vacation-home loans because the risk of losses is inherently higher: if a borrower loses his job and can only pay one mortgage, it’s more likely to be the primary residence than the vacation home, he says.

Vacation-home buyers who have a mortgage on their primary residence are also at a disadvantage. Borrowers’ home payments and other debts typically can’t surpass 36% of their pre-tax income if they want to get approved for one mortgage. Try to buy a second home with a loan, though, and borrowers will need to make both home payments and other debts fit in this 36% range as well, says Donnelly. (The most lenient lenders could go up a bit to the low 40% range.)

A vacation home’s location can also influence whether the lender approves the buyer, says Donnelly. Lenders typically want a vacation home to be at least 50 miles away from the primary residence and near a resort area – like beaches, lakes, or ski towns – otherwise they suspect that the individual is actually trying to buy an investment property to rent out, he says. (While mortgage rates for vacation homes are the same as primary residences, they’re higher on investment properties.) In 2011, just 21% of vacation-home purchasers bought properties 50 miles or less from their primary residence, according to the NAR, while the median distance was 305 miles away from the primary residence.