The Update

What Are the Costs of Buying a Vacation Home?

Owning a vacation home is a dream come true for many homeowners, offering them a personal retreat for relaxation and a potential source of rental income. However, there are many costs associated with buying and owning a vacation home, some of which are not taken into consideration until the first bill shows up. Here’s a breakdown of the expenses you’ll encounter when buying a second home and some other important factors to take into account.

The Costs of Buying a Vacation Home

Buying and owning a vacation home won’t be cheap. Here are some key costs to consider:

• The mortgage — with increased interest

Your biggest expense is likely to be your monthly mortgage payment. A mortgage on a second home will generally be 0.50 percent to 0.75 percent more than the interest rate on your primary home.

• Expensive homeowners insurance

Insuring your second home will likely be more costly than covering your primary residence.

• Property taxes and utilities

You’ll now be paying property taxes and utility bills on two homes. If your vacation home is in a highly desirable area, as vacation homes tend to be, it’ll likely have a high tax rate.

• Maintenance and repairs

Every home needs regular maintenance and the occasional repairs – even vacation homes. This can add up quickly.

• Property management

Unless you plan to manage your second home on your own, you’ll need to pay for property management services.

• Security

Because you won’t be there as often as you would be at your primary residence, you’ll want to ramp up the security at your second home – and that will cost you.

• HOA fees

Your vacation home may be in an area that has a Homeowner’s Association (HOA) with the attendant fees.

Reasons to Purchase a Vacation Home

For many, the noted costs are justifiable. Here are some reasons you may want to purchase a vacation home:

• For personal vacation use
• To supply rental income
• As a longer-term investment
• For retirement planning

How is Purchasing a Second Home Different From Purchasing a First Home?

There are several significant differences between purchasing a second home and a first home?

• Larger down payment. A bigger down payment is often required for a second home.
• Interest rate. As mentioned, interest rates on second-home loans tend to be higher than those on primary residences.
• Qualifications. Lenders may have stricter eligibility requirements for income, credit scores, debt-to-income ratios and more for second home purchases.

What Are My Financing Options For a Second Home?

You can finance your second home with a mortgage from a private lender or financial institution, such as . You’ll choose a mortgage type, such as adjustable-rate mortgage or fixed-rate mortgage, as well as the loan term, such as a 15- or 30-year loan.

You can also finance your second home using the equity in your first home by taking out a Home Equity Loan or Line of Credit (HELOC).

Which Additional Factors Do I Need to Consider When Purchasing a Vacation Home?

There are many factors to consider when purchasing a vacation home:

• Buying vs. building. Buying a ready-made home will enable you to move into or rent out the home sooner, while building may take longer but will allow you to customize the home.
• Land. If you’re building your vacation home from scratch, be sure to consider the cost of land when calculating the financial burden of your new home.
• Storage for recreational equipment. Before signing on a property, make sure it has sufficient storage for recreational vehicles and equipment you may want to use at the home.
• Amenity access. Check to see if the amenities you desire in a vacation home are accessible before you close.

Explore Vacation Property Loans With RGCU

Investing in real estate is a smart way to generate income and secure your financial future. Whether you're purchasing a vacation home or refinancing a property, we offer flexible loan options to meet your needs. With an affordable loan from Rio Grande Credit Union, you can maximize the potential of your investment.

Trust our lending experts to guide you through your options and help you find the best loan for your goals.