Should You Buy a Vacation Home? What to Know Before Purchasing a Second Home

What to Consider When Buying a Vacation HomeMany homeowners dream of the day they can purchase a second property, and the fantasy usually includes a large home in a luxurious area of the world. While a vacation home doesn’t necessarily have to cost millions of dollars, a vacation home purchase should still be treated with just as much importance. Depending on the goals for a vacation home, it might end up being an even more complex transaction than the primary home you live in. Here are some tips for buying a vacation home all buyers should keep in mind in this vacation home buying guide.

General Factors To Consider

Even though a vacation home might be considered a luxury or even an investment, it is still a home and should include many of the same decision-making processes as a normal home. The first major thing to consider should be budget, as this home may likely be bringing another mortgage into the equation.

If a vacation home is a cash purchase, then that leaves out a lot of the legwork. However, if financing will be used, take the time to research interest rates, mortgage lenders, and stick to a budget carefully. Buyers might also benefit from waiting until it’s the right time to buy, as home prices might dip a bit during a certain time of the year.

Vacation Home Specifics

It goes without saying that a vacation home is a unique purchase, not only because many people don’t get to make such a large decision about their second home, but also because it can impact annual taxes to a certain extent. There is no one best way to buy a vacation home, and often times homeowners like buying a vacation home to that can be used as a vacation rental during a portion of the year, and this income needs to be recorded very carefully.

The interest on a vacation home can often be deducted as well, and the time an owner lives in the home can impact these numbers greatly. Make sure to work with a tax professional and even discuss the various considerations with a real estate agent before making a final decision.

Some buyers can have a difficult time obtaining financing for multifamily properties and end up going the route of a single-family home even though it might not have been their first choice. Working with a trusted lender can go a long way toward making a vacation home purchase less stressful.

Others like to explore options including time-share properties, vacation clubs, or condominiums, but again with the variety of these types of properties, it’s best to do a lot of research ahead of time. Ultimately, talking with local residents about the culture and demographics of the area can help influence your decision.

Requirements For Buying Your Second Home

One aspect of buying vacation home that many buyers don’t realize is that the requirements are much more stringent for a second home than a primary residence. Here are some of the differences all home buyers need to consider:

  • The down payment for a primary residence can be as low as 3%, but the down payment for a vacation home will be at least 10%, but lenders can require 20% if the buyer’s application isn’t strong enough.
  • Buyers can’t use FHA or VA loans to buy a vacation home because both of these loans are government sponsored, and government loans can only be used on primary residences.
  • Second home property loans have higher rates than primary residence mortgages, so buyers need to account for extra costs when budgeting.
  • The required credit score for buying a second home is also higher than it is for buying a primary residence: 640 for a vacation home compared to 620 for a primary residence.

Purchasing vacation home real estate isn’t quite as simple as buying a primary home, so buyers need to be ready for extra costs and more stringent requirements so they aren’t taken by surprise later on.

An Important Decision

Just like with a primary residence, the purchase of a vacation home should be thoroughly researched before being executed. The more information at your disposal the better, as you’ll be prepared for any kind of financing or purchasing hurdle that might come up.

In the end, the purchase of a vacation home is very exciting and should be celebrated. Whether you’re looking for a place on a lake, or a small-town getaway in Edina, there’s no doubt that the first time the home is used for an extended holiday weekend or just a spur of the moment trip, all of the hard work will have paid off. Keep these tips for buying a second home in mind and they can help make the journey of navigating vacation home real estate a little bit easier.

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