How to buy a vacation home

Quick insights

• Before buying a vacation home, consider how often you’ll use the home, its location and your financial readiness, including hidden costs like maintenance and taxes.
• If you’re planning to rent out your vacation home, be prepared for extra responsibilities or the cost of hiring a property manager.
• Whether through a conventional loan, refinancingec-refinance-hl000061 or shared ownership, pick a financing option for your vacation home that aligns with your financial goals.

Owning a vacation home can sound like living the dream. Imagine a cozy retreat where you can escape whenever the mood strikes, and perhaps, possibly generate some rental income when you’re not there.

While it’s easy to get caught up in the fantasy, buying a vacation home is a serious financial and lifestyle decision. There are many factors to weigh before you take the plunge. Here, we’ll provide an easy-to-follow guide on how to buy a vacation home, what to consider before making the leap and whether this move is the right fit for your life and finances.

Should I buy a vacation home?

Before you start browsing listings of dreamy oceanfront homes or charming mountain cabins, stop and ask yourself, “Should I buy a vacation home?” It’s a valid question, because vacation homes come with perks, but they also bring responsibilities.

How much time will you spend there?

A vacation home can be a worthwhile investment if you’re committed to using it often. If you’re shelling out thousands in mortgage payments, maintenance and property management fees for a home you only visit twice a year, is it worth it? Be realistic about how frequently you’ll actually stay at the property.

Is it in a place you will travel to often?

Location is everything in real estate, and that rule rings especially true for vacation homes. If you’re eyeing a beach house in Florida but live in Oregon, traveling there might not be as simple or as cost-efficient as you think.

Choose a property that’s in a destination you adore and can easily reach, whether it’s a short drive or direct flight away.

Can you afford the stress and added expenses?

Owning a second home isn’t all sunset views and quick weekend getaways. Along with the mortgage, you’ll need to factor in expenses like property taxes, insurance, utilities, maintenance and possibly a homeowners association (HOA) fee. Not to mention, vacation homes can come with unique costs like seasonal upkeep and emergency repairs.

While owning a vacation home doesn’t need to be all work and no play, these are serious costs (both in terms of time and money) to consider. The good news is, in some cases, you may be able to alleviate some of these concerns by setting a concrete budget and accounting for all costs. That way, you’ll have clarity about whether buying a vacation home is financially wise for you.

Will you be using it as a rental?

Many homeowners offset the cost of buying a vacation home by turning it into a rental property when it’s not in use. However, becoming a part-time landlord comes with its own set of challenges.

Do you feel comfortable managing the bookings, fielding complaints and maintaining the property? If not, you may need to hire a property management company, which is another cost to consider.

However, if done right, vacation rentals can help generate consistent income and make the investment more financially feasible.

Do you think the property will appreciate?

A second home could double as a smart investment property. If you buy in a market where real estate values are rising, you might enjoy significant appreciation in value over time—as long as you keep an eye on trends in the local real estate markets where you’re considering.

Since 1975, the average 10-year return on home prices in the U.S. has increased by about 57%.ec-patience-pays-off While there will always be fluctuations in the market (and the appreciation of a property is dependent on a wide variety of factors, from location to condition and property type), investing in real estate can often be a sound strategy.

Costs to consider when buying a vacation home

Accounting for several expenses might make sure that your decision to buy a vacation home doesn’t turn into a financial nightmare:

Mortgage costs

Unless you plan to pay in cash, you’ll need to secure a mortgage to purchase your vacation home. When it comes to financing, remember you’ll need to factor in closing costs, which average around 2–5% of the loan amount. These include fees for appraisals, title insurance, lender fees and more.ec-closing-cost-calc

There’s the cost of the loan itself, too. You can figure out your approximate cost by using this mortgage calculator.

Something to keep in mind as you start making plans is that you can take an interest deduction on the new property on your taxes. If you take out a mortgage for your vacation home, you can deduct interest paid on up to $750,000 of total debt (combined with your primary residence).ec-irs-pub-936 A tax advisor should be consulted for more information.

Down payment

How much of a down payment do you need for a vacation home? It depends. In many cases, the down payment required on a vacation home is higher than what you’d pay for a primary residence.

Most lenders require 10–20% down, but that could be higher or lower depending on your credit score and the property.ec-mortgage-vacation-home-exp Remember that the more money you pay as a down payment, the lower your future interest costs will be. If you can, aim to save for a robust down payment.

Taxes

Are there tax benefits to owning a vacation home? In many cases, yes. If you choose to itemize deductions on your tax return, you can deduct property taxes on your primary and vacation home together. However, this deduction is capped at $10,000 for both state and local taxes combined.ec-patience-pays-off

There may also be tax implications to consider if you decide to rent out your vacation home part-time. If you rent the home for 14 days or fewer per year, you typically won’t owe taxes on the rental income,ec-patience-pays-off but you should consult a tax professional to make the most of your situation.

Maintenance costs

A vacation home isn’t all sandy beaches and cozy fireplaces. It does require some upkeep. Regular maintenance costs may include:

• Routine repairs: From leaky roofs to HVAC servicing, these expenses can add up.
• Property management: If you live far away and don’t plan on personally maintaining the home, hiring a property management company can be a lifesaver—but it isn’t cheap.
• HOA Fees: Buying a home in a resort-style community? Be prepared for HOA dues.

If you’re not planning to be on-site year-round, you’ll also need to factor in costs for things like cleaning, snow removal and lawn care as well.

Insurance expenses

Though this may not be the case for the property you select, many vacation homes tend to be in areas with higher risk factors (think hurricanes, floods or fires), which makes insurance coverage a non-negotiable, but also quite costly. A few policies to consider include homeowners insurance, flood insurance and hurricane or natural disaster coverage.

How to buy a vacation home: Step-by-step

Before you start the homebuying process in paradise, there are a few things to keep in mind. Here’s an overview of the process:

1. Figure out what type of house you’d like

First, decide on the type of property that will best suit your needs and lifestyle. Will it be a tranquil cabin in the woods, a beachside bungalow or a sleek condo in the city? Before you commit, treat your decision with as much consideration as you would if you were choosing your main residence.

Pro tip: Act like a local, not a tourist. Visit the area multiple times per year and across different seasons. A charming summer destination might lose its appeal once winter rolls around.

Talk to locals and consider renting in the area for a while to get a true feel for what it’s like to live there year-round.

And while this might sound obvious, you should try to avoid buying a home in a location you’ve never visited. You won’t know if the climate, neighborhood or overall vibe are the right fit for you without stepping foot there first.

2. Decide if you will rent the property part of the year

Will your vacation home be just for you, or will it double as a rental property? This decision will shape your budget and overall strategy. If you plan to rent the property part-time, you may be able to offset some of your costs with rental income.

However, be mindful that becoming a landlord comes with responsibilities like property management and upkeep.

3. Set your budget

Now that you’ve defined what you want, it’s time to figure out what you can afford. Aside from the purchase price, you’ll also need to factor in ongoing costs, such as property taxes, HOA dues, maintenance and furnishing for your vacation home.

Remember, if you decide to use the home as a rental, you might also need to budget for cleaning services and property management fees.

4. Talk to a lender

Find a lender who’s experienced with financing second homes and vacation properties. The lender can help you figure out how much you qualify for and provide insights into what financing options make the most sense.

Generally, you’ll need a solid down payment along with a good credit score. Unlike primary residences, vacation homes are often subject to stricter lending criteria, but working with a seasoned lender can help you manage this process more easily.

5. Familiarize yourself with the tax rules

If you’re dipping your toes into both vacation home ownership and property investment, you’ll want to get familiar with Internal Revenue Service (IRS) rules.

The IRS considers a vacation home an investment property if you use it for fewer than two weeks per year but rent it out the rest of the time.ec-irs-topic-415

Keep in mind that rental losses are treated as “passive losses,” which can only be offset by income from other passive activities. If these losses stack up, they can roll over and be used after selling the property.ec-irs-topic-415

These tax rules often feel like a murky gray area, so it’s wise to consult a financial advisor or tax professional, so you can fully understand your obligations and benefits.

6. Close on the property

Once your budget is in place, financing is sorted and you’ve chosen the right spot, it’s time to seal the deal. During closing, you’ll finalize all paperwork and officially become the owner of your new vacation home. Don’t forget to celebrate the milestone with a trip to your new getaway!

Is it hard to finance a vacation home?

Financing a second home can be straightforward if you plan well and choose the right lender. Some financing options include:ec-mortgage-vacation-home-exp

• Conventional loans: Similar to financing your primary residence, you can use a conventional loan for your vacation home. Your monthly payments will depend on factors like your credit score, debt-to-income (DTI) ratio and down payment. Keep in mind, down payment requirements for a second home may be higher.
• Cash-out refinance: If you’ve built up equity in your primary residence, you can tap into it by refinancing your mortgage. A cash-out refinance allows you to borrow against your home equity and use the funds as a down payment on your vacation home.
• Shared ownership: Buying a vacation home with friends or family is another way to make your dream a reality. This option reduces the costs, and the burden is shared among trusted individuals.

Speak with a Chase Home Lending Advisor to find the best financing route that fits your financial situation.

Is it financially smart to buy a vacation home?

The answer truly depends on your priorities, budget and long-term goals.

On one hand, buying a second home will help you avoid paying for hotels, especially if you travel to the same spot frequently. You’ll likely enjoy more self-sufficient getaways, as you’ll have your own kitchen to cook in as well as more space.

There’s also the potential for investment and/or retirement planning, as your vacation home could be your permanent spot to settle down in once you stop working.

That said, managing two mortgages can be financially stressful. And if you plan to rent out your vacation home when you’re not using it, that generally means you’ll be taking on a second part-time job of “landlord.”

And while real estate tends to increase in value over time, that’s not always the case. Property prices can sometimes stagnate or even fall, so choose wisely.

In summary

Ultimately, the decision to buy a vacation home depends on your financial situation, goals and lifestyle. If you’ve done your homework, found the perfect spot and considered all the costs, it can be a rewarding investment that brings joy for years to come.

Not ready to commit yet? Take your time and keep researching. After all, buying a vacation home is a big step—but with the right planning, it’s one you hopefully won’t regret.