Mortgages & Home Loans

How To Finance a Vacation Home

By

Updated on April 27, 2023

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Young women friends with suitcase walking toward vacation house rental — Photo:
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Purchasing a vacation home gives you a sense of freedom and the flexibility to enjoy a few days off without the hassle of searching for a place to stay or making reservations. Whether you're seeking enjoyment or financial benefits, understanding how to finance a vacation home is a key part of the buying process. Getting familiar with your financing options will make it easier to navigate the process.

How To Finance a Vacation Home

Evaluate your budget. Start your vacation home buying journey by considering your budget and how much you can afford to pay. This information will play a role in selecting the best financing option.
Research lenders. Shop around with a few lenders so you can compare rates and terms and find the best mortgage lender.
Gather documents. When you're ready to apply for financing, be prepared to provide some documents that prove you meet the requirements for approval.
Apply and close. Assuming all goes smoothly with the application process, you'll get the keys to your vacation home at the closing table.

Key Documents and Financial Requirements

Before you can get approved for vacation home financing, lenders want to be sure you can afford to make the mortgage payments. Here's a brief overview of the documents you'll need to show.

Proof of Income and Employment

Before approving a loan for a vacation home, the lender will verify your income and employment to be sure you have reliable income for making mortgage payments.

You'll need to provide:

Recent pay stubs, including your employer's name and contact information
Original copies of your W-2 forms from the last two years
Proof of income from other sources
Signed federal tax returns and any applicable schedules

List of Debts and Assets

The lender may request an itemized list of all your debts and assets, including the monthly payment on each. Be prepared to provide at least three months of your most recent bank statements showing that you have enough for your down payment and a few months of mortgage payments afterwards.

Note

Your reserve requirement—the amount you need to have set aside for future mortgage payments—will be higher for your vacation home, depending on the total number of properties you'll have.

Finance Options for a Vacation Home

Previous homebuyers will have some familiarity with financing options, though some of the loan choices available for primary homes are off the table for buying a vacation home.

Conventional Mortgages

Conventional mortgages are one of the more common ways of financing a vacation home. These mortgages aren't part of a government program and are more difficult to get. However, with vacation homes, conventional mortgages may be one of the few options available. You can apply through a bank or mortgage lender.

Government-Backed Loans

These loans are part of a government program that ensures the lender gets paid. This includes VA loans, FHA loans, and USDA loans. Government loan programs exclude second or vacation homes, so they aren’t usually an option, but there are some exceptions.

Home Equity Loans or Lines of Credit

If you already own a home, you may be able to borrow against your existing equity through a home equity loan or line of credit. A home equity loan is a closed-ended loan that you repay over a set term, often with a fixed monthly payment. A home equity line of credit allows you to borrow against a credit line over and over, like a credit card.

Cash-Out Refinancing

A cash-out refinance replaces your existing mortgage with a new one at the appraised value. You'll receive the difference between your loan balance and the new mortgage as cash.

Note

Borrowing against your home equity for a vacation home puts your both your homes at risk if you can't afford to make payments.

Seller Financing

In some cases, the seller may be willing to offer financing, that is, allow you to make payments for the vacation home. This could be a good option if you're having trouble getting approved for a traditional mortgage and you can't leverage existing home equity.

How To Choose a Lender for a Vacation Home

Start the process by considering how you want to finance—whether through a conventional loan, home equity loan or line of credit, or cash-out refinance. This gives you an idea of the kind of lender to work with.

Look for a lender that specializes in financing vacation home purchases, ideally in the area where the vacation home is located. You can search online, but asking around may be more effective. Your realtor can be a good source of referrals.

As you build your list of prospective lenders, speak with loan officers to learn what kinds of loans and rates are available. If your buying situation is complicated, or you have some unique circumstances, present them upfront so you and the lender can decide whether you're a good fit.

Gather a list of loan requirements from each lender you're considering. Along with loan terms, this information can help you narrow down your options. You may have to make some trade-offs, like higher rates for more flexible terms. Ultimately, selecting the lender that best fits your needs is key to financing a vacation home.

Compare the Best Mortgage Lenders

Company	Min. Credit Score	Max. Debt-to-Income	Days to Close
Rocket Mortgage	620	50%	26 days
Cherry Creek Mortgage	620	50%	28–42 days
Fairway Mortgage	620	50%	30–45 days
Caliber Mortgage	620	50%	10–30+ days
Primary Residential Mortgage	620	50%	21–30 days

Frequently Asked Questions (FAQs)

Can You Rent Out Your Vacation Home To Help Cover the Costs?

You can rent out a vacation home, but in some cases, you may be required to report the rent as income. Specifically, if you rent your home for more than 14 days in a year, you’ll be considered a landlord and are required to report the rent as income. You're also allowed to deduct rental losses. However, if you also use the home for 14 days or more, or 10% of the rental days, you must divide expenses between rental and personal use.

How Much Money Do You Need for a Down Payment on a Second Home?

While there are many down payment assistance programs for first-time homebuyers, you’ll need to pay at least 10% down for a second home. Some lenders may require bigger down payments.

Is a Vacation Home the Same as a Rental Property?

A vacation home isn't necessarily the same as a rental property. However, a vacation home can be considered a rental property if:

You rent it out for more 14 days out of the year at fair market value, and
You live in it for fewer than 14 days or 10% of the total days you rent it out, whichever is greater.

For instance, if you rent the home for nine months or 270 days and you (or family members) live in it 27 days or less, it's considered rental property rather than a dwelling or residence.

Can You Have Two Primary Residences?

No, you can only have one primary residence, which is the home where you spend the most time. Your primary residence is typically where you’re registered to vote, the address you use on your tax returns, the address on your driver’s license, or the address on file with the postal service.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Chase Bank. "What You'll Need for a Mortgage Application."
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Fannie Mae. "Selling Guide: Minimum Reserve Requirements."
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Consumer Financial Protection Bureau. “What is ‘Seller Financing’?”
Consumer Financial Protection Bureau. "Exploring Loan Choices: Contact Multiple Lenders."
Internal Revenue Service. "Topic No. 415, Renting Residential and Vacation Property | Internal Revenue Service."
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Internal Revenue Service. "Publication 523, Selling Your Home."