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Is A Vacation Home Realistic For You?

Apr 26, 2008
At one time or another, you may have dreamed of owning a vacation property. Making that dream a reality can be challenging, especially when trying to secure a vacation home mortgage.

The Challenges of a Vacation Home Mortgage

You may face some obstacles when attempting to finance a vacation property:

*The property itself may not be deemed a good investment by traditional lenders. Properties located on an island, lacking running water or plumbing, or without direct road access are not usually considered a secure investment.
*Financing can be affected by the type of property you are considering. Homes with central heating (winterized) and year-round road access that are zoned as residential are usually easier to finance. Homes that are not winterized and have only seasonal road access, while offering a truly rustic vacation, are considerably more difficult to finance.

You also need to factor other expenses into your vacation home mortgage calculations. Upkeep and taxes, which can vary depending on where the property is located, can increase costs.

Renting Out Your Vacation Home

Some people plan to rent out their vacation homes to help defray costs. Before assuming that renting will make you money, you need to educate yourself on the conditions of the local rental market.

According to an MSN Money article, vacation homes need to be rented 15-17 weeks per year for the owner to break even. Could you manage that with your home?

If you decide to rent, can you manage the property or will you have to hire a local property manager? Some estimates have pegged property management fees at anywhere from 10%-60% of rental income. Even at the low end, management fees will eat into the revenue you are counting on to help pay down your vacation home mortgage.

Christine Hrib Karpinski has found success renting her vacation homes and wrote a book called How to Rent Vacation Properties by Owner. She tells people considering vacation home rentals to do their research. To know whether renting is a viable option, you need to determine how many weeks you can rent. You also need a clear idea of your costs which include mortgage, insurance, property and sales taxes, advertising, maintenance, repairs and cleaning.

Other Considerations

Vacation properties can come with complexities like easements, communal drives and so on. As a buyer you must be fully apprised of exactly what you are buying. Douglas Hunter, author of The Cottage Ownership Guide, recommends that you make a full survey a condition of sale so there are no surprises.

He also recommends that a home inspection be a condition of sale, and that you hire a home inspector who is experienced in dealing with vacation properties.

Obtaining a Vacation Home Mortgage

It is best to find a lender with experience working with vacation properties and their often unusual traits and circumstances. Financing for winterized, year-round cottages can usually reach 95% of the purchase price, while non-winterized properties are usually financed at 75%. To investigate the possibility of more favorable financing, talk to a mortgage broker.
About the Author
For more information on vacation home mortgages or a second home mortgage contact a CMI mortgage broker.
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