1. Vacation Property Walkthrough: Introduction
  2. Vacation Property Walkthrough: Reasons To Purchase Vacation Property
  3. Vacation Property Walkthrough: Considerations When Choosing A Vacation Property
  4. Vacation Property Walkthrough: Timeshares And Fractional Ownership
  5. Vacation Property Walkthrough: Financing A Vacation Property
  6. Vacation Property Walkthrough: International Vacation Properties
  7. Vacation Property Walkthrough: Maintaining A Vacation Home
  8. Vacation Property Walkthrough: Renting Out A Vacation Home
  9. Vacation Property Walkthrough: Selling A Vacation Property
  10. Vacation Property Walkthrough: Conclusion

A vacation property comes with all of the expenses of a primary residence, including mortgage principal and interest, property taxes, homeowners insurance, association dues, utilities, and costs associated with maintenance and major repairs. In addition, the vacation home may need new appliances and flooring, painting and sealing, furnishings, lighting fixtures, window treatments and supplemental insurance (such as hurricane or flood insurance). It is important to consider all of these expenses - for both the primary residence and vacation property - when determining if a second property is financially feasible. Much of the joy of owning a vacation home is lost if it becomes a financial burden. Once it has been established that purchasing a vacation property is financially manageable, one must consider the financing options. For many home buyers, an FHA-insured loan is ideal because these loans require a low down payment of just 3.5%. These loans, however, are not available for second home purchases, so buyers must look into other options.

For buyers who have saved enough money, an all-cash purchase is the easiest method to purchase a vacation property. Since many vacation home buyers tend to be older and in more comfortable financial situations, all-cash purchases are fairly common - according to the NAR 2011 Investment and Vacation Home Buyers Survey, 36% of vacation home buyers paid cash, as did 59% of investment buyers.

Home Equity Loan
A home equity loan is another option for buyers who already have substantial equity in a primary residence. The drop in real estate prices in recent years may affect the amount of equity one has in a home, resulting in a potentially smaller home equity loan. In addition, lenders may be less willing to approve a home equity loan if it takes too much equity from the borrower's principal residence.

Conventional Loan
Conventional loans typically entail significant down payments. For single-family homes, the down payment may be around 25-30%, depending on the market and the buyer. For condominium units - a particularly hard hit segment of the mortgage industry following the late 2000s financial crisis - it may be closer to 50%, and both the buyer and the condominium association will have to qualify for the loan.

To qualify for a conventional loan on a vacation property, the borrower will need a high credit score, a strong debt-to-income ratio, and they must be able to provide the lender with documentation regarding income and assets. Not all lenders will allow rental income (if the vacation property will be rented out) to be considered for the loan qualification. Lenders that do consider rental income may only allow a percentage to count toward loan qualification, and they may require documentation regarding the property's rental history.

Vacation Property Walkthrough: International Vacation Properties

Related Articles
  1. Managing Wealth

    Economics of Owning a Vacation Home

    Discover the financial factors behind owning a second home and how weighing your options can determine if a vacation home is right for you.
  2. Personal Finance

    Strategies To Buy The Perfect Vacation Home

    Ask yourself these six questions to make the right decision about a vacation property.
  3. Personal Finance

    How To Afford A Second Home

    Buying a second home, even if it’s relatively affordable, takes careful budgeting and planning. Here's how to do it.
  4. Personal Finance

    Read This Before Buying a Vacation Home with Friends

    Going in with friends to buy a vacation home will save you on the mortgage and expenses. But if there's conflict, it could end up costing your more.
  5. Trading

    Tips For Renting A Vacation House

    Follow these nine steps to get a picture-perfect summer shack at a great price.
  6. Investing

    The Complete Guide to Financing an Investment Property

    If you're considering adding an investment property to your portfolio, you need to know what your options are for financing its purchase.
  7. Personal Finance

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  8. Personal Finance

    Tax Breaks For Second-Home Owners

    The tax rules on a second home vary, depending on how the property is used.
  9. Personal Finance

    The Smartest Way to Tap Your Home Equity

    Using your home as a source of funds can be a smart choice in some situations. Just be sure to carefully run the numbers.
  10. Personal Finance

    Buying a House? 6 Other Costs You Should Factor In

    When purchasing a home, you need to factor in more than just the list price of the home. From closing costs to maintenance, there are many other expenses.
Trading Center