Once you have a clear understanding of why to buy a vacation home, the next step is understanding the cost—whether you can afford it.
Budgeting for a vacation home is different than your primary residence, in part because mortgage lenders and the IRS will treat your purchase differently based on whether they categorize it as a second home or an investment property.
Mortgage lenders and the IRS look at different factors to categorize your home (and may define them differently), but generally speaking, an investment property is rented out to generate additional income while a second home is for your own personal use. Taking out a mortgage may be easier for a second home than an investment property, but there are trade-offs when it comes to how you file your taxes.
This can get a little complicated, so bear with us. (And our lawyers would like us to clarify that we aren’t financial advisors or accountants, so please consult the licensed experts after reading our general overview.)
Unless you’re intending to buy your vacation home with cash, you’ll need to apply for a mortgage. Lenders are more particular about approving a second home mortgage because they’re usually considered subordinate to your primary home mortgage—meaning you’ll have to pay the first one back before the second if you default on the loans and go into foreclosure.
Keep in mind that both investment properties and second homes are ineligible for government loans (like an FHA, USDA, and VA loans).
Investment properties usually require more stringent qualifications, higher down payments, and higher interest rates than second homes. This is because investment properties are considered higher-risk—if you run into financial trouble, you’re more likely to walk away from a home you don’t live in than one you do.
Second homes usually receive better interest rates and require lower down payments than investment properties, but being dishonest about your intentions is considered occupancy fraud.
Lenders typically require that a second home is at least 50 miles away from your primary residence, while a property less than 50 miles away is considered an investment property—because you aren’t likely to vacation in a home so close to where you live full-time.
Learn more about mortgages in our guide to financing a vacation home.
Vacasa offers property management and other real estate services directly through Vacasa LLC and through Vacasa LLC's licensed subsidiaries. Click here for more information about Vacasa's licensed real estate brokerage/property manager in your state. Vacasa’s licensed real estate brokerages/property managers include: Vacasa Alabama LLC; Vacasa Arizona LLC; Vacasa Delaware LLC, 302-541-8999; Vacasa Florida LLC; Vacasa Louisiana LLC, Dana MacCord, Principal Broker, ph 504.252.0155 (Licensed in LA); Vacasa Michigan LLC, 947-800-5979; Vacasa Missouri LLC, Susan Scanlon, Designated Broker; Vacasa Nevada LLC; Vacasa New Hampshire LLC, P.O. Box 283, Conway NH 03818, Dave Grant, Broker of Record; Vacasa New Mexico LLC, 503-345-9399; Vacasa New York LLC, 888-433-0068, Susan E. Scanlon, Real Estate Broker; Vacasa North Carolina LLC; Vacasa Pennsylvania LLC; Vacasa Real Estate Corporation, California DRE #02105811, Joseph Czapkowicz, California DRE #01380722; Vacation Palm Springs Real Estate, Inc., California DRE #01523013, Joseph Czapkowicz, California DRE #01380722; Vacasa Real Estate LLC (licensed in Colorado, Daned Kirkham); Vacasa Real Estate LLC (licensed in Idaho, Oregon, and Utah); Vacasa Real Estate LLC (licensed in Tennessee, 615-671-9916); Vacasa Real Estate LLC (licensed in Texas, Debra Brock, Designated Broker); Vacasa Real Estate LLC (licensed in Washington, Robert Brush, Designated Broker); Vacasa Seasonals Inc., California DRE #02160171, Daned Kirkham, California DRE #01424621; Vacasa South Carolina LLC; Vacasa Tennessee LLC; Vacasa Vacation Rentals of Hawaii LLC, 3350 Lower Honoapiilani Road, Suite 600, Lahaina, HI 96761; Vacasa Vacation Rentals of Montana LLC, Patrice Tompkins, Licensed Property Manager; Vacasa Virginia LLC; Vacasa Wisconsin LLC; Vacasa Wyoming LLC. In Canada, this advertisement is provided by Vacasa Canada ULC, CPBC lic. number 75826, 172 Asher Rd. V1X 3H6 Kelowna, BC.