Mortgages & Home Loans Should You Buy a Vacation Home? By Carissa Rawson Carissa Rawson Carissa Rawson is a personal finance and credit cards expert who has been featured in numerous publications, including Forbes, Business Insider, and The Points Guy. Carissa earned a bachelor's from the American Military University and has an MBA from Norwich University, an M.S. from the University of Edinburgh, and is currently pursuing an MFA from National University. learn about our editorial policies Updated on January 26, 2022 Reviewed by Doretha Clemon Reviewed by Doretha Clemon Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder. learn about our financial review board Fact checked by Rebecca McClay Fact checked by Rebecca McClay Rebecca McClay is a financial content editor and writer specializing in personal finance and investing topics. For more than 15 years, she's produced money-related content for numerous publications such as TheStreet and MarketWatch, and financial services firms like TD Ameritrade and PNC Bank. She covers topics such as stock investing, budgeting, loans, and insurance, among others. learn about our editorial policies Photo: Westend61 / Getty Images The idea of a vacation home can be compelling, especially if you’re looking to buy in a highly desirable vacation market. After all, with a retreat of your own, you can avoid the hassle of searching for hotels or paying the high costs of renting. Owning your own vacation home, or secondary residence has pros and cons to consider. Let’s take a look at whether buying a vacation property is the right choice for you. Key Takeaways A vacation home can help you avoid the hassle of shopping for rentals and may provide a source of income.Vacation homes require plenty of considerations, including tax implications and maintenance costs. When you’re away from your home, vacancy can be a concern, though some counties offer free home checks. Should You Buy a Vacation Home? Buying a secondary residence is similar to buying a home for your primary residence in that location and affordability will be top priorities. But there are a few other factors to consider with vacation homes, such as vacancy issues and different tax implications. Location One of the first factors you’ll want to think about before buying your vacation home is its location, including how far will it be from your primary residence. If you buy one too close to your home it will likely be considered an investment property rather than a second home, which can increase your down payment requirements and interest rates. If you purchase one that is too far away, you may visit less. However, driving to a vacation home can cost significantly less than buying airline tickets—especially if you’ve got a large family. Note Banks generally require that a secondary residence be located at least 50 miles from your primary residence. The location of your vacation home will also dictate other issues, such as property taxes and rental policies. Some cities limit types of rentals or otherwise outright ban short-term lets, whether they are rentals directly through the property owner or through companies like Airbnb. Affordability Buying a vacation home comes with several expenses that are different from the expenses related to buying your first home. In terms of lending requirements, you’ll have to meet the same standards to qualify, like providing a stable income, a decent debt-to-income (DTI) ratio, and a healthy credit score. But there are other criteria with secondary homes. Banks will want to see that you can make payments for both your primary and secondary mortgages. Lenders may also have higher down payment requirements for vacation homes, although not quite as high as required for investment properties. You’ll need to put down a minimum of 10% for most banks. You cannot use an FHA loan to buy a secondary residence. Finally, the annual percentage rate (APR) for your mortgage may be higher than that of your primary residence, all other factors (like market conditions) being equal. Keep this in mind when researching how much home you can afford. Other costs to keep in mind include the annual maintenance for keeping up the property as well as any homeowner’s association (HOA) dues. Vacancy Unlike a primary residence, vacation homes are often unoccupied, which can have several consequences. For one, a vacant home may attract intruders or vandalism. It can also offer an opportunity to nab rental income with short-term leases. Consider how you will use the property when it is vacant. Note Some counties offer free vacation home checks while you’re away, ensuring that your property stays secure. If not, you may want to hire someone to check on your property. If you plan to rent out your home when you aren’t there for income, you’ll need to plan how often you’ll want to open it to renters. Renting it out for 15 days or less per year exempts your home from federal taxes. If your property is open to renters longer, you’ll have to report the income you receive and pay capital gains tax on it. However, you can deduct some of the expenses of your second home, but you’ll need to calculate how often you stay in it versus renting it to understand your tax obligation. Generally, lenders restrict the amount of time a secondary residence can be rented to 180 days. Otherwise, they consider the property to be an investment property, which has different loan terms and requirements. Pros and Cons of Buying a Vacation Home Pros Building equity Earning income Increasing enjoyment Saving money Cons Tax implications Vacancy issues Additional costs Pros Explained Building equity: Your secondary home will build equity over time. You can borrow against that equity or do a cash-out refinance (if you qualify). Earning income: Your property can offer a reliable income stream, especially if it’s located in a popular vacation destination. Increasing enjoyment: A vacation home, as its name implies, provides a place to relax and unwind. Saving money: Vacation homes are a major expense, but on a per-day basis you can potentially save money over the cost of renting. Cons Explained Tax implications: Tax consequences for your secondary residence will be different than for your primary residence. Understand what deductions your vacation home qualifies for, and how income you receive will be taxed. Vacancy issues: Since you won’t reside in your vacation home full-time, you’ll need to prepare for vacancy periods. Leaving your house empty can lead to safety concerns while renting it out too often can classify it as an investment property, which has different loan terms. Additional costs: Vacation homes are expensive. You’ll be liable for the mortgage and other common expenses that come along with maintaining a house, including any HOA fees. How Do You Finance a Vacation Home? You can finance a vacation home with a mortgage, although your choices in mortgages will be different from your choices for mortgages for your first home. You’ll typically need a down payment and will need to meet basic lending criteria to qualify for a mortgage, such as proving sufficient income and a healthy credit history. How Do You Buy a Vacation Home With No Money Down? Generally, you must put some money down for a mortgage for a vacation home. Loans that do not require money down are typically for first-time home buyers. For example, an FHA loan may not require a down payment, but these loans are only available for properties that will be your primary residence, not for vacation homes. How Do You Determine How Much Vacation Home You Can Afford? You can use a mortgage calculator to determine the monthly payments of your potential home. Lenders typically like to see a debt-to-income ratio of 43%. If you are planning to rent your vacation home, you may be able to include some of the estimated income as income toward your mortgage. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit 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. New York City Office of Special Enforcement. "About Illegal, Short-Term Rentals." California Housing Finance Authority. "CalHFA FHA Program." Internal Revenue Service. "Topic No. 415 Renting Residential and Vacation Property." Consumer Financial Protection Bureau. "'What is a Debt-to-Income Ratio?"