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How to find and finance a vacation home

Turn your dream of a second home into reality by knowing how to narrow down your options.

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Matt Miczulski
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So you’ve decided to buy a vacation home. First off, congratulations. Now, let’s help you figure out how to find and finance your second home.

This isn’t your first time buying a home, but it may have been a while since you’ve gone through the steps. Here’s what you need to know.

1. Decide on a budget

Whether you’re financing your vacation home or paying in full with cash, figure out your budget and how a second home fits in with your other financial goals. A budget will help you determine what mortgage amount you can afford.

If you’re financing, consider getting preapproved for a mortgage before going house shopping. A preapproval will tell you the maximum amount you can get approved for, allowing you to narrow down your search to properties only within your budget.

Of course, a preapproval doesn’t have to equate to how much you’ll actually spend — you can get preapproved for more than you plan to spend. On the other hand, if the preapproval is less than anticipated, it will at least show you how much more cash you’ll need to get the house you want.

If you plan to borrow, shop around to find the best mortgage lender for your situation.

Expenses to consider

While this isn’t a comprehensive list of costs you can expect to incur when buying a second home, here are some of the most common expenses to consider when budgeting:

  • Mortgage payment
  • Homeowners insurance
  • Home repairs and maintenance
  • Property taxes
  • Security equipment
  • Decor and furnishings
  • Property management costs, if it’s used for rental income
  • Homeowners Association dues

2. Decide how you’ll use a vacation home

People buy vacation homes for different reasons. Some buy a vacation home with no intention of ever renting it out. Others plan to use it as an investment property, renting it out to vacationers during the times they’re not using it themselves.

There’s no right or wrong reason, but mortgage lenders typically want to know how you plan to use your home when issuing a mortgage. Likewise, insurance companies issue different vacation home insurance policies depending on how you intend to use it.

Consider how you’re going to use the home ahead of time.

  • Primary residence
  • Second home for you and your family
  • Investment property
  • Second home/investment property combination

Should I consider a timeshare?

Timeshares can be an affordable alternative to buying a vacation home, providing a guaranteed destination to unwind in with family and friends. If you don’t plan to use the property year-round, you’ll typically pay only for the time you plan to enjoy it, helping you to avoid the bigger costs that come with a second home.

To weigh whether a timeshare is right for you, you’ll want to ask if your arrangement is fixed to specific weeks or first come when available throughout the year. Also look into whether you can give away or sell your share if you’re not available to use it.

Also make sure that you understand the many regular costs that can come with a timeshare, including annual and maintenance fees. You may also be on the hook for periodic upgrades and fixes to wear and tear that come with rental properties.

Unlike outright purchasing a second home, your timeshare may not be the best investment. Even if your share increases in value over time, it could be washed out by fees, tax implications and other costs over time.

3. Find a home

Consider bringing in a trustworthy realtor to help locate properties that match your requirements. Your realtor will also arrange showings for you to view each property.

If you don’t want to sit back and wait for your realtor to send potential properties your way, you can use real estate listing websites like Zillow, Realtor.com or MLS.com to find properties on your own. Once you find a house, send the listing to your realtor, who can schedule a viewing for you. These services are also available for you to find and compare local real estate agents.

If you plan to rent your second home, check local ordinances to be sure it’s allowed. Some areas tax Airbnbs as hotels, so you’ll want to look into that as well.

4. Do your due diligence

You’ve found some properties that meet your criteria, and now it’s time to really explore them.

View each house and make an assessment. If you’ve found a property you’d like to call home, schedule a home inspection. Depending on the inspection results, now’s the time where you negotiate the property’s price, given any repair costs you would assume after you close.

Your realtor will help submit your bid and negotiate on your behalf.

5. Make an offer

Decide how much to offer, what contingencies you want and how much earnest money you’ll deposit. Earnest money is a deposit you can make before closing on a house that shows you’re a serious buyer.

If you decide to back out or fail to close within the specified time frame, the seller keeps the deposit. But if the home purchase falls through because of a failed inspection or any other contingencies listed in the contract, you’ll get your earnest money back.

Your realtor will submit your offer, which then goes to the seller to either accept, reject or counter. If they make a counteroffer, your realtor will continue to act as the go-between during negotiations.

6. Get a mortgage

Even if you’re already preapproved, you’ll still need to get a full approval to secure a mortgage. Your lender may require you to submit your most recent financial information when you formally apply for a mortgage, including things like:

  • W2 forms from the last couple of years.
  • Recent pay stubs.
  • Federal tax returns from the last couple of years.
  • Recent bank statements.
  • Details on other debt.

In addition to your financial information, lenders will need to approve the property’s appraisal value and verify the title information. Depending on the type of home loan, your lender may require that the property meets specific standards before the loan can close. For instance, a termite inspection is required for almost every VA loan.

Compare mortgage lenders

Not all lenders are alike and your experience can be drastically different depending on the lender you choose to do business with. Some waive lender fees altogether, while others are worth the small premium because of their stellar customer service and easy mortgage process.

To figure out which lender is right for you, compare lenders and lender marketplaces by the type of home loan you’re searching for, state availability and minimum credit score (for a conventional loan). Select See rates to provide the company with basic property and financial details for personalized rates.

Data updated regularly
Name Product Loan products offered State availability Min. credit score ‎
Rocket Mortgage
(NMLS #3030)
Rocket Mortgage
Conventional, Jumbo, FHA, VA, Refinance
Available in all states
620
See rates
More Info
Streamline your mortgage from quote to final payment — all from your computer or phone.
AmeriSave
(NMLS #1168)
AmeriSave
Conventional, Jumbo, FHA, VA, USDA, Refinance
Not available in: NY
620
See rates
833-426-1288
Great customer reviews and customized rate quotes in three minutes with no SSN needed.
Veterans United
(NMLS #1907)
Veterans United
Conventional, FHA, VA, USDA, Jumbo, Refinance
Available in all states
620
See rates
More Info
Veterans United stands out from other lenders for its focus on serving the military community.
Better
(NMLS #330511)
Better
Conventional, Jumbo, FHA, Refinance
Not available in: HI, MA, MN, NV, NH, VT, VA
620
See rates
More Info
Online preapproval in minutes and no origination fees with this direct lender.
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Compare up to 4 providers

7. Close on the home

After your offer has been accepted and you’ve chosen a mortgage lender and loan, you’ll need to close on your house. The closing process can vary by area, so learn the details of your closing in advance. You’ll want to know who will conduct your closing, where it will be and when. You’ll also want to know how much you’ll need to pay at closing and your options to pay it.

Before signing, take the time to read through all your closing documents and compare your Closing Disclosure to your most recent loan estimate to make sure all the information is correct.

Building vs. buying

Even after your research and discussions with real estate agents, it’s possible that you might not find a vacation home that’s right for you. Despite a neverending assortment of vacation home listings, sometimes the best way to get what you want is to build it yourself.

Building your own vacation home can offer more flexibility than purchasing an existing property. You’ll have the freedom to choose exactly where to put it and design the layout that makes it uniquely yours.

But a major mistake people make when building a home is underestimating the costs that come with land, architects or design firms, building materials, permits and more.

Collect realistic estimates before deciding whether to buy or build. To make sure that you pick up an adequate construction loan, add in money to cover the inevitable unexpected costs that arise along the way.

Many online lenders offer construction loans, including:

  • LendingTree. Offers a handful of loan programs that can help you finance the cost of a new vacation home.
  • LoanDepot Mortgage. A fairly new lender but home to resources and experts that can help you finance the construction of your second home.
  • Rocket Mortgage by Quicken Loans. Backed by the well-established Quicken Loans, its experts can help you get the financing you need.

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