The thought of buying a second home often brings up a big financial question mark. For many, the dream feels just out of reach due to the high costs and responsibilities of sole ownership. But what if there was a more accessible way to enjoy a beautiful getaway without the full financial burden? This vacation home buying guide is here to demystify the entire process, from understanding mortgages to budgeting for upkeep. We’ll explore all the practical steps you need to take to get financially ready and introduce modern solutions, like co-ownership, that are making the dream of a vacation home a reality for more families.
Key Takeaways Understand the total cost of ownership : Look beyond the listing price by creating a realistic budget that includes recurring expenses like property taxes, insurance, maintenance, and potential HOA fees.Clarify your vision before you search : Decide how you'll use the property, what kind of location fits your lifestyle, and what the local rules are for things like short-term rentals to focus your search effectively.Consider co-ownership for an easier experience What Does a Vacation Home Really Cost? The listing price of a vacation home is just the start. To make a smart decision, you need to understand the full cost of ownership, including the down payment, mortgage, taxes, insurance, and upkeep. Let's break down the real costs so you can create a realistic budget.
Calculating Your Down Payment Your down payment is the first major cost. For a second home, lenders typically require at least 10% of the purchase price, but that can rise to 20% or 25% if your credit isn't perfect. This larger upfront investment is a key difference from buying a primary residence. Planning for it helps you set a realistic budget and explore financing options that fit your financial picture, ensuring a smooth start to your journey.
Understanding Second Home Mortgages Getting a mortgage for a vacation home is often more challenging. Lenders have stricter requirements, looking for a strong credit score, low debt, and ample cash reserves. As noted by The Mortgage Reports , this is because a second home is seen as a higher risk. Being prepared for these higher standards is key to navigating the approval process and showing lenders you can comfortably manage the additional financial responsibility.
Factoring in Taxes and Insurance Don’t forget property taxes and insurance, which are significant recurring costs. Tax rates vary by location, so research is key. Vacation home insurance can also be more expensive, especially in high-risk areas. While you may be able to deduct mortgage interest and property taxes, as Quicken Loans explains, it's best to consult a tax advisor. Factoring these expenses into your budget from the beginning prevents surprises down the road.
Budgeting for Maintenance and Upkeep A vacation home needs constant care. A good rule of thumb is to budget 1% of the home’s value each year for maintenance, covering repairs, landscaping, and other upkeep. This ensures your getaway stays in great condition. These ongoing costs are a fundamental part of ownership. It's why many people explore models like co-ownership , where maintenance is often handled as part of the service, simplifying the experience for every owner.
How Will You Use Your Vacation Home? Before you start browsing listings, take a moment to think about what your ideal vacation looks like. Are you picturing quiet family weekends by the lake, or are you thinking about a property that helps pay for itself? How you answer this question is one of the most important first steps, as it shapes everything from your location search to your financing options. Deciding whether your property will be a private retreat, a rental business, or a little of both will guide your entire buying process and help you find a home that truly fits your life.
Personal Getaway vs. Rental Property Think of this as choosing between a personal sanctuary and a business asset. If the home is purely for your own enjoyment, your decisions can be all about personal taste. You can pick a remote location, decorate exactly how you like, and prioritize features that matter most to you and your family. On the other hand, if you plan to use it primarily as a rental property, you’ll need to think like an entrepreneur. This means choosing a popular tourist destination, focusing on amenities that attract renters, and understanding the local market to maximize your bookings.
Planning for a Mix of Both Many owners find a happy medium by using their vacation home for personal getaways and renting it out when they’re not there. This hybrid approach allows you to create lasting memories while offsetting some of the operating costs. It’s a practical way to make ownership more affordable without giving up your own vacation time. This is the foundation of the co-ownership model, which is designed to give you the best of both worlds. Just keep in mind that lenders will look at how often you plan to rent the property out, which can influence your mortgage terms.
How Your Choice Affects Financing The way you plan to use your home directly impacts your mortgage options. Lenders typically categorize properties as either a "second home" or an "investment property," and the rules are different for each. To qualify for a second home loan, which often has better rates, you’ll need to occupy the property for part of the year. If it’s primarily a rental, it will likely be classified as an investment property, which usually requires a larger down payment and a higher credit score. Understanding your financing path early on will save you time and help you set a realistic budget.
How to Choose the Perfect Location Choosing a location for your vacation home is about more than just picking a spot on a map. It’s about finding a place where you can truly unwind, connect with loved ones, and create lasting memories. The right location feels like a natural extension of your life, a second home that calls you back year after year. Before you get swept away by beautiful photos, take some time to think about what you really want and need from a getaway.
Consider the logistics, like how you’ll get there and what you’ll do once you arrive. Think about the vibe of the area and whether it matches your family’s personality. A bustling beach town offers a different experience than a quiet mountain cabin. By exploring your options and doing a little homework on the local scene, you can find a place that you’ll be excited to visit for years to come. This is the fun part, where you get to dream a little and picture your ideal escape.
Finding Your Ideal Setting The first step is to pick a location you'll actually enjoy that fits your lifestyle and vacation preferences. Start by asking yourself what your ideal getaway looks like. Are you dreaming of a ski-in/ski-out condo where you can hit the slopes every morning, or a lakeside home with a dock for summer fun? Think about the activities your family loves and the kind of environment that helps you relax.
Consider travel time, too. A spot that’s a short drive away might get more use than one that requires a long flight. You can browse our current listings to get a feel for different types of properties and the lifestyles they offer. Your vacation home should be your happy place, so make sure its setting aligns with what brings you joy.
Considering Climate and Seasons Think about the weather and how it changes throughout the year. If you love sunny days, a desert retreat might be perfect, but if you prefer four distinct seasons, a mountain location could be a better fit. It’s also smart to consider what each season offers. A ski town is obviously great in the winter, but what is there to do in the summer? Many mountain destinations offer incredible hiking, mountain biking, and festivals during the warmer months.
Beyond the weather, think about accessibility and amenities. Is the home easy to get to year-round, or do winter storms make travel difficult? Check for nearby grocery stores, restaurants, and fun attractions that will make your stays more convenient and enjoyable.
Researching the Local Market Understanding the local market helps you get a sense of the area’s energy and appeal. Look into the community to see if people love vacationing there. Are there popular attractions that draw visitors, and are they open year-round or only seasonally? A vibrant local scene with great restaurants, shops, and community events can make your time there much more enjoyable.
While the main goal is personal enjoyment, knowing the area is popular can be reassuring. It’s also helpful if you plan to rent out your unused weeks to help offset operating costs. A strong rental market indicates a desirable location, which is a good sign for everyone. Our co-ownership model is designed for you to make the most of these amazing locations without the full financial commitment.
Checking Local Rental Rules If you’re thinking about renting out your vacation home to offset some of the costs, you’ll need to understand the local rules. Some cities, towns, or homeowner associations (HOAs) have strict regulations about short-term rentals. It’s important to check these rules before you buy to avoid any surprises later on. These regulations can affect how often you can rent out your property and what licenses or permits you might need.
Doing this research upfront ensures you have a clear picture of your options. At Fraxioned, we handle the complexities of property management, but it’s always good to be informed about the community you’re joining. You can find more details on how property management and rentals work on our FAQ page .
Your Guide to the Mortgage Process Securing a mortgage for a vacation home might feel like a big undertaking, but it’s a lot more straightforward when you know what to expect. The process is similar to buying your primary residence, but lenders will look at your finances a bit differently since it’s a second property. Think of it as a simple, four-step process: checking your financial health, gathering your documents, exploring your options, and getting a pre-approval.
Breaking it down this way helps you tackle one thing at a time and move confidently toward owning a place where your family can make memories for years to come. Whether you’re just starting to dream or are ready to look at properties, understanding these steps will put you in a great position. If you have questions along the way, exploring financing options with experts can provide clarity and support tailored to your situation. Let’s walk through what you’ll need to do.
What Credit Score Do You Need? Your credit score is one of the first things a lender will look at. For a second home, they generally want to see a strong credit history, as it shows you can responsibly manage multiple loans. While every lender is different, you’ll typically need a credit score of at least 640 to qualify.
If you’re planning on a smaller down payment or have a higher amount of existing debt, lenders might look for a score of 680 or even 720. A higher score often translates to a better interest rate, which can save you a lot of money over the life of the loan. It’s a good idea to check your credit score early on so you know where you stand.
Gathering Your Paperwork Getting your financial documents in order before you apply will make the entire mortgage process feel much smoother. Lenders need to verify your income and assets to confirm you can comfortably afford a second home. Start by creating a folder with your most recent pay stubs, W-2s from the last two years, and your federal tax returns.
You’ll also need to provide bank statements and information on any investment accounts to show you have funds for the down payment and closing costs. If you already own property, have the mortgage statements for those ready, too. Having everything in one place means you can respond to your lender’s requests quickly and keep the process moving forward.
Exploring Your Loan Options When you’re ready to look at loans, you’ll find several options available for second homes. A conventional loan is the most common choice. Lenders will look closely at your debt-to-income (DTI) ratio, which is the percentage of your monthly income that goes toward paying debts. Generally, they prefer a DTI ratio of 43% or less.
This is a great time to talk to a mortgage professional who can walk you through the different loan types and help you find one that fits your financial goals. They can explain the terms, interest rates, and requirements for each, helping you make an informed decision without the guesswork.
Getting Pre-Approved A pre-approval is a letter from a lender stating how much money you’re qualified to borrow. This step is a game-changer because it shows sellers you’re a serious and credible buyer. It also gives you a clear budget, so you can focus your search on homes that are comfortably within your financial reach.
To get pre-approved, a lender will review your credit, income, and assets. The process is fairly quick and gives you the confidence to make a strong offer when you find the perfect vacation spot. Think of it as the final piece of preparation before you can start the exciting part: shopping for your new home.
What to Budget for After You Buy The purchase price is the first number you’ll focus on, but it’s not the last. Owning a vacation home comes with ongoing expenses that are important to plan for, from monthly utilities to annual upkeep. Thinking about these costs ahead of time helps you create a realistic budget and ensures your getaway remains a source of joy, not stress. It’s about being prepared so you can spend your time there relaxing and making memories, not worrying about surprise bills.
The good news is that with a co-ownership model , these recurring expenses are shared among the owners, making them much more manageable than going it alone. Instead of covering 100% of the bills for a home that you might only use for a few weeks a year, you’re only responsible for your fraction. This approach makes luxury vacation home ownership accessible without the full financial weight. To help you get a clear picture of what to expect, let’s walk through the key costs to keep on your radar after you get the keys. We’ll cover everything from property management and maintenance to HOA dues and insurance, so you can feel confident and prepared for this exciting new chapter.
Property Management Fees If you plan to rent out your vacation home for the weeks you aren't using it, a property manager can be a lifesaver. They handle everything from marketing your property and managing bookings to coordinating cleaning and addressing guest needs. This service is especially helpful if you don't live near your vacation spot. Typically, a property management company will charge a percentage of the rental income, often between 10% and 15%. Factoring this into your budget helps you understand how renting can offset your home's operating costs, making your vacation home even more affordable.
Utilities and Regular Upkeep Just like your primary residence, your vacation home has monthly utility bills for electricity, water, gas, and internet. You’ll also want to set aside funds for regular maintenance to keep the property in great shape. A good rule of thumb is to budget about 1% of the home’s value annually for upkeep. This fund can cover everything from landscaping and pest control to repairing appliances or touching up paint. Planning for these home maintenance costs prevents small issues from turning into expensive surprises down the road, ensuring the home is always ready for you and your family.
HOA Dues and Other Fees Many vacation homes, especially condos or properties in planned communities, are part of a Homeowners Association (HOA). If so, you’ll pay monthly or annual dues that cover shared amenities and services like pools, fitness centers, snow removal, and landscaping. These fees can vary quite a bit depending on the location and what’s included. It’s also smart to ask about special assessments, which are one-time fees HOAs can charge for major projects, like replacing a roof on a shared clubhouse. Always review the HOA documents carefully before you buy to understand all the rules and costs involved.
Understanding Your Insurance Needs Insuring a vacation home is a bit different from insuring your primary home. You’ll need a specific policy that accounts for the fact that the property isn’t occupied year-round. Premiums can be higher if the home is in an area prone to floods, wildfires, or hurricanes. It’s important to shop around and speak with an insurance agent to find the right second home insurance policy. Getting adequate coverage gives you peace of mind, protecting your beautiful retreat from the unexpected. This is another cost that feels much lighter when it's shared among co-owners.
Understanding the Legal Side of Things Buying a vacation home is exciting, but it comes with a bit of homework. Getting a handle on the legal details from the start helps ensure your getaway remains a place of relaxation, not stress. From local rental rules to property titles, a little preparation goes a long way. Think of it as setting a solid foundation for years of happy memories. When you buy a home through a co-ownership model , the legal legwork is managed for you, but it’s still smart to understand the basics of what goes on behind the scenes.
Local Rules for Short-Term Rentals If you plan to rent out your vacation home to help cover costs, you’ll need to get familiar with local regulations. Many communities have specific rules about short-term rentals, including how often you can rent and what permits you might need. These rules can come from the city, county, or a homeowners association (HOA). It's also a good idea to speak with your mortgage lender about your plans. Lenders often want to know if the property will be a second residence for personal use or an investment property, as this can affect your loan terms.
Clearing Up Title and Ownership Making sure the property has a clean title is a critical step. A title search confirms that the seller has the legal right to sell the property and that there are no outstanding claims or liens against it. This process helps you avoid future surprises, like disputes over property lines or zoning restrictions. A thorough property inspection and title search are standard procedures that protect you as a buyer, giving you peace of mind that the home is truly yours, free and clear.
Your Tax Responsibilities Renting out your vacation home can have tax implications you’ll want to prepare for. Generally, if you rent the property for more than 14 days a year, the money you earn is considered rental income by the IRS. This means you'll need to report it on your tax return. On the bright side, you may also be able to deduct certain expenses related to the rental, like maintenance and management fees. It’s always a good idea to consult with a tax professional to understand how your vacation home will affect your specific financial situation.
Navigating Licenses and Permits Beyond rental rules, you’ll also need to be aware of local zoning laws and permit requirements. Zoning regulations determine how a property can be used, whether for residential or commercial purposes. If you plan on making any changes to the home, like adding a deck or renovating a kitchen, you’ll likely need to get a permit from the local building department. Understanding these land use regulations beforehand can save you from potential fines and legal issues down the road.
Is Co-Ownership Right for You? If you dream of a vacation home but feel hesitant about the full financial weight and year-round responsibilities, co-ownership might be the perfect solution. It’s a modern approach that lets you enjoy all the benefits of a luxury getaway spot without the traditional burdens. By sharing the property with a small group of other owners, you share the costs, the upkeep, and most importantly, the memories. This model is designed for enjoyment, making that dream home an accessible and stress-free reality.
The Perks of Sharing Ownership The most significant advantage of co-ownership is making a luxury vacation home affordable. You get a deeded share of the property, which means you are a true owner, but you only pay for a fraction of the purchase price. All the ongoing expenses, from property taxes and insurance to maintenance and utilities, are split among the owners. This makes the financial side of things much more manageable. Plus, with a fully managed model like Fraxioned’s co-ownership program , you don’t have to worry about upkeep. You can simply arrive and start relaxing, knowing that everything is taken care of for you.
Setting Up a Clear Agreement A strong co-ownership arrangement is built on a clear and simple agreement. Think of it as the friendly ground rules that ensure everything runs smoothly for everyone involved. Your agreement doesn’t need to be overly complicated; it should focus on the big questions. A great co-ownership agreement will outline how scheduling works, rules for guests, how repairs and upgrades are handled, and the process for paying shared bills. Putting these details in writing from the start prevents future misunderstandings and allows all owners to feel secure and respected in their shared home. It’s always a good idea to have a legal professional review it, too.
Scheduling Stays and Splitting Costs One of the first questions people ask about co-ownership is, "How do we decide who gets to use the house when?" Modern co-ownership uses smart, equitable scheduling systems to make booking your stays simple and fair. Through an owner portal, like the myFRAX Portal , you can easily view availability and reserve your time throughout the year, ensuring everyone gets ample opportunity to enjoy the home. Similarly, splitting costs is a transparent process. All operating expenses are divided among the owners and managed professionally, so you always know what you owe. You can even rent out your unused time to help offset these annual costs.
Planning Your Exit Strategy While you may plan to enjoy your vacation home for years to come, it’s wise to have an exit strategy in place from the beginning. Life is unpredictable, and circumstances can change. A clear exit plan protects all owners and makes the process of selling your share straightforward. Your ownership agreement should detail how a sale will work, whether it’s offering the other owners the first right to buy or selling your share on the open market. Fraxioned helps facilitate this process, making it seamless to resell your portion of the home. You can find more answers to questions about selling on our FAQ page .
Common Mistakes to Avoid Buying a vacation home is an exciting milestone, but it’s easy to get swept up in the dream and overlook a few practical details. A little foresight can make all the difference between a cherished family retreat and a source of stress. Thinking through these common missteps ahead of time will help you make a choice you’ll be happy with for years to come.
The goal isn’t to scare you off, but to prepare you. By learning from the experiences of others, you can approach your search with confidence and clarity. Let’s walk through a few key areas where buyers sometimes stumble, so you can keep your footing and find the perfect getaway.
Underestimating the True Cost The purchase price is just the starting line. A vacation home costs more than the number on the listing, and it’s crucial to budget for all the other expenses that come with it. Think about property taxes, homeowners insurance, and regular upkeep, which can add up quickly. You’ll also want to factor in the cost of utilities, potential HOA fees, and even your own travel expenses to and from the property. Creating a comprehensive budget that includes these ongoing costs will give you a realistic picture of affordability and prevent financial surprises down the road. This is where co-ownership can be a game-changer, as it allows you to split these expenses with other owners.
Skipping Your Location Homework It’s easy to fall in love with a place during a perfect week of vacation, but living there part-time is a different story. Before you commit, pick a location you'll actually enjoy returning to again and again. Do your homework by visiting during different seasons to get a feel for the community year-round. Research local attractions, how accessible the area is, and what the neighborhood is like when tourists aren't around. A great vacation spot is one that fits your family’s lifestyle, whether you’re looking for adventure, relaxation, or a bit of both. Looking at curated listings in desirable areas can give you a great starting point for your research.
Forgetting About Property Management A vacation home should be a place to relax, not a second job. If you’re hundreds of miles away, managing everything from a leaky faucet to lawn care can become a major headache. If you plan to rent out your home, you also have to consider the work of marketing, booking, and cleaning. Consider hiring a property manager or finding a local contact to care for the home when you're away. A solid management plan is key to a stress-free experience, ensuring your property is always secure and ready for you or your guests to enjoy. This is why a fully managed approach, like the one accessible through the myFRAX Portal , is so appealing to many owners.
Ignoring Local Rules Every community has its own set of rules, and you don’t want to find out about them after you’ve already bought the property. Common legal issues can include disputes over property lines, zoning restrictions that might affect any renovation plans, and specific regulations for short-term rentals. Before making an offer, take the time to understand the local ordinances that apply to your potential home. A thorough title search is also essential to make sure there are no hidden claims on the property. Getting clear on these details upfront will help you avoid frustrating and costly legal problems later on. You can often find answers to these types of questions on a company's FAQ page .
How to Get Financially Ready Turning your vacation home dream into a reality starts with a solid financial plan. It might sound intimidating, but getting your finances in order is an empowering first step that puts you in control. Think of it as building the foundation for years of future memories. By breaking it down into manageable steps, you can move forward with confidence, knowing you’re making a smart and sustainable choice for your family. Let’s walk through exactly what you need to do to prepare for this exciting purchase.
Create Your Vacation Home Budget The first step is to get a clear picture of the total cost. A vacation home costs more than the purchase price; you’ll also need to budget for ongoing expenses like property taxes, insurance, general upkeep, and even your travel to and from the property. Creating a comprehensive budget from the start helps you avoid any financial surprises down the road. When you explore co-ownership , many of these operating costs are shared among the owners, which can make your budget much more predictable and manageable from year to year.
Save for Your Down Payment Your down payment is the first major financial milestone on your path to ownership. For a second home, you’ll typically need to put down at least 10% of the home's price. If your credit score is a bit lower or you have other existing debts, lenders might ask for a down payment closer to 20% or 25%. Saving this amount shows lenders you’re financially responsible and committed to the purchase. Looking into your financing options early can give you a clear savings goal to work toward.
Secure Your Pre-Approval Before you start browsing beautiful mountain cabins or lakeside retreats, it’s a great idea to get pre-approved for a mortgage. Getting pre-approved shows sellers you're a serious buyer and gives you a firm understanding of how much you can comfortably borrow. This step is all about clarity. It defines your price range, so you can focus your search on homes that are a perfect fit for your budget. Once you have your pre-approval in hand, you can confidently browse available listings and know exactly what’s within reach.
Build a Cushion for Surprises Every homeowner knows that unexpected expenses can pop up, from a leaky faucet to a necessary appliance repair. That’s why building a financial cushion is so important. A good rule of thumb is to plan on saving about 1% of the home's price each year for upkeep, though older homes might require a bit more. This fund gives you peace of mind, knowing you’re prepared for anything. With a co-ownership model, these surprise costs are split between all the owners, significantly reducing the financial impact on any single family.
Related Articles Frequently Asked Questions Besides the mortgage, what are the most significant ongoing costs I should plan for? Beyond your monthly mortgage payment, you should budget for property taxes, homeowners insurance, and general upkeep. A good guideline is to set aside about 1% of the home’s value each year for maintenance and repairs. With a co-ownership model, these recurring expenses are shared among all the owners, which makes the financial commitment much more predictable and manageable.
Is buying a vacation home worth it if I can only use it a few weeks a year? For many people, covering 100% of the costs for a home you use part-time can be hard to justify. This is exactly why co-ownership is such a great fit for modern life. You purchase a share of the home that aligns with the amount of time you'll actually use it, so you aren't paying year-round for a property that sits empty most of the time. It makes ownership practical and financially sound.
How much time and effort does managing a vacation home actually take? When you own a home by yourself, the management can feel like a part-time job. You are responsible for everything from finding a reliable cleaner and landscaper to handling unexpected repairs, often from a distance. A fully managed co-ownership model removes this entire burden. All the property management, maintenance, and cleaning are handled for you, so your vacation time is spent relaxing, not working on a to-do list.
With co-ownership, how do you make sure scheduling is fair for everyone? Fairness is built right into the system. Co-ownership models use a smart and equitable scheduling platform, often through an owner portal, that makes booking your stays simple and transparent. The system ensures every owner gets access to the home throughout the year, including holidays and peak seasons. It’s designed to be flexible and easy, so you can plan your getaways with confidence.
What makes co-ownership a more accessible way to own a vacation home? Co-ownership makes owning a luxury vacation home possible for more people in two key ways. First, the purchase price is significantly lower because you are buying a share of the property instead of the whole thing. Second, all the annual operating costs, like taxes, insurance, and utilities, are split among the owners. This shared financial structure removes the primary barriers to owning a beautiful second home.
