Buying a Vacation Home: What to Know Before You Commit

Picture spending long weekends at the beach, the lake or the mountains in a place that is truly yours. A vacation home can deliver years of family memories, and in some cases a stream of rental income. It is also a significant financial commitment, so it pays to go in with a clear plan. Here is what to think through first.

Choose the Location Carefully

Where you buy shapes everything from how often you will use the home to how well it rents. Questions to consider:

• How far is it from your primary home, and how easy is the trip?
• Is it a place you will enjoy in multiple seasons, or only a few weeks a year?
• What amenities are nearby, such as restaurants, groceries, medical care and activities?
• If you plan to rent it out, is there steady demand from travelers?

Spend time in the area during different seasons if you can. A town that is lively in summer may be very quiet in winter.

Budget for More Than the Price Tag

The purchase price is only the beginning. Ongoing costs can include:

• Property taxes, which may be higher for non-primary residences in some areas
• Insurance, including wind or flood coverage in coastal regions
• HOA or condo fees
• Utilities, internet and lawn or pool service, even when you are not there
• Furnishings, supplies and regular maintenance
• Travel costs to get there

Build these into your budget so the getaway stays relaxing rather than stressful.

Understand Second Home Financing

Lenders typically view second homes as somewhat higher risk than a primary residence. That often means a larger down payment, stronger credit and more cash reserves. Pricing may also differ.

How you plan to use the property matters too. A true second home is generally one you occupy part of the year and do not primarily rent out. If the main purpose is rental income, it may be treated as an investment property, which has different guidelines. Options like investment property loans or DSCR loans, which focus on a property’s rental income, may fit that situation better. If the home is a higher-priced property, a jumbo loan may come into play.

Research the Rental Picture

If you hope to offset costs by renting the home when you are not using it, do your homework before buying:

• Check city, county and HOA rules on short-term rentals. Some areas restrict or ban them, and others require permits and taxes.
• Look at comparable listings to estimate nightly rates and occupancy.
• Identify peak and slow seasons so your income expectations are realistic.

Plan How You Will Manage It

Caring for a property from a distance can be challenging. Who will handle a leak at midnight, clean between guests or check on the home after a storm? A local property manager can take care of bookings, cleaning, repairs and guest communication for a fee. If you prefer to self-manage, line up trusted local help before you need it.

Think About Your Exit Plan

It may feel strange to plan a sale before you buy, but it is wise. Your needs may change as family grows, careers shift or retirement approaches. Consider how easy the home would be to sell later, how broad its appeal is and whether the area has a steady base of buyers. Talk with a tax professional too, since selling a second home or rental property can have different tax treatment than selling your primary residence.

Make Your Getaway a Reality

A well-chosen vacation home can be a rewarding investment in both your finances and your quality of life. If you are ready to explore financing, reach out to FLO Mortgage and a loan officer will help you understand your options.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.