Do you ever return home after a great vacation and wish you could have that piece of paradise to yourself? Buying a vacation home in your favorite destination is not only a great investment, but it can also allow you to create memories for years to come. Before making the decision to buy a vacation home, there are several factors to consider. When it comes to the down payment, expect to put at least 10% on a vacation home (compared to a 5% minimum, or even no down payment, for a primary residence). You can buy your primary residence with only 3% discount in many cases.
But you need at least a 10% discount to buy a vacation home and that's if the rest of your application is very strong (high credit score, low debt, etc.).
Average Sales PricesDiscuss average sales prices in the area with your real estate agent to assess how much you need to put into a home. You should also evaluate how much remodeling or initial maintenance work a property may require to determine if it is worth the investment.
Financing OptionsSince FHA loans aren't an option for anything except for principal residences in the United States, you'll need conventional financing or a portfolio loan from a private lender.
Either way, lenders generally require a 20% to 25% down payment on a second home to make it less risky for them. If you use the property as an investment property, you may be required to pay an even larger down payment. Before making a decision, you should also talk to your mortgage lender about using your vacation home as a short-term rental property. If you're having trouble qualifying for a vacation home loan when you first apply, try looking for a lender with more lenient requirements.
Lenders assume that if landlords have financial problems, they will be more aggressive in keeping up with primary residence payments than vacation home payments.
Renting Your Vacation HomeSome homeowners defray their monthly mortgage payments by renting their vacation home when they don't use it. You could make several hundred dollars a night, enough to put a dent in your monthly vacation home mortgage payment. With a vacation home, you can receive tax benefits for mortgage interest and property taxes if the home is used as a secondary residence.
Renovations and AccessibilityDetermine if you have the financial resources to renovate your future vacation home to fit your specific needs and preferences. Consider these pros and cons with your family to help you decide if buying a vacation home is right for you.
Vacation home sales skyrocketed at the start of the pandemic, and now that many Americans can work remotely, their appeal may be even stronger for some. For example, if your vacation home will be in a popular area for retirees, you may need to make your property more accessible. Decide if you prefer the flexibility of choosing from a variety of destinations for an annual vacation rather than the reliability of having a vacation home you can always go to.