5 Things You Need When Buying a Vacation Home

When you start thinking about buying a vacation home, you should remember that it is an investment property. Here's what you need in any vacation home.

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5 Things You Need When Buying a Vacation Home

Posted by Gary Ashton on Wednesday, August 21st, 2019 at 10:34am.

What to Keep in Mind When Buying a Vacation HomeBuying a vacation home is quite different than buying a primary residence, since you do not plan to live in it all the time. However, you may want to look for these five aspects to ensure that you are satisfied with the property and can protect your investment.

Close to Amenities

Some people love to take a vacation in a cabin that is out in the woods, far from neighbors and tourist crowds. This isolation could also get tiresome after a while. Most vacation home buyers typically want a location that is a little more busy. If you plan to spend a lot of time in your vacation home each year, you may need access to a gas station and a small grocery store without driving a great distance. At the least, you should find out how long it will take emergency services to arrive, if the homes you are considering are in a remote location.

Adequate Space

A lot of families are accustomed to living in smaller quarters while they are on vacation. When you look at vacation homes, you want to ensure that you are staying on the right side of the cozy/cramped spectrum. Think about your needs in the next 10–15 years. Opt for homes that will work for you now and in the future.

Growth Potential

It is a wonderful idea to purchase a vacation home by the lake that you loved visiting as a child. Buying in an area that has a history for you could be an excellent investment, because you already know how much you like it. Do some research to confirm that the place has kept up in the ensuing decades. A tourist destination that is dying out could become boring for you to visit and harder to sell a few years from now. By comparison, a resort town that is finding ways to reinvent itself throughout the years has growth potential that is more likely to maintain its relevance for you and preserve the value of your investment.

Simple Maintenance

The primary worry about vacation homes is that they will sit vacant much of the year. Whether you want to buy one to visit on summer weekends, or you will use it mostly as an investment property, a state of low maintenance is practically an obligation. A property that is left unattended for weeks or months at a time may sustain expensive damage. If you are not prepared to hire a property management company to keep an eye on it, or visit it yourself, you should consider buying a condominium that requires a lower degree of upkeep.

Easy to Rent

A lot of vacation home owners bypass the need to oversee a vacant house by renting it out to tenants most of the time. If this is your goal, you should balance what you want in the property with what tenants are likely looking for. Short-term and long-term occupants typically want close access to various amenities like shopping, dining and entertainment. They may be searching for a home that requires less work on their part, relying on you as the landlord to handle most issues. As such, you should invest in a property with lower maintenance needs, including updated systems, appliances and structural elements (e.g. roof and siding).

Requirements to Qualify for a Second Mortgage for a Vacation Home

Because homeowners with an existing mortgage already have steep obligations for the first loan, the requirements for a second mortgage may be a little tighter than their current loan. In most cases, the minimum down payment is at least 20 percent, but many lenders may require an even higher down payment of up to 35 percent for a second home.

A higher credit score is typically required as well, usually at least 725 or 750, and the debt-to-income ratio should be lower than average as the lender will need to see that buyers are able to pay on both the new and existing mortgage confidently. Significant cash reserves are also required, and homeowners are likely to need to document all income sources and assets to demonstrate this. 

Vacation home buyers should also expect to pay a higher interest rate on a second mortgage as these rates are based on risk and juggling two mortgages is definitely a risky endeavor. Buyers should also be aware of additional requirements when purchasing a vacation house that is part of a condominium building or similar development. Many lenders will require the entire development to be at least 70 percent owner-occupied with fewer than 15 percent of those owners behind on dues. If buyers are planning on renting the vacation home to generate income while it is not in use, this income will often not be considered as part of the mortgage unless documentation that the home has a consistent rental history is provided. If those additional requirements are not met, the lender may charge an even higher interest rate or decline the loan entirely.

Buying a vacation home may be a perfect investment if you play your cards right. Check these five details off the list, and you will be ready to go.


Gary Ashton

The Ashton Real Estate Group of RE/MAX Advantage

The #1 RE/MAX team in the World!

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