5 Smart Things to Think About Before Buying a Vacation Home
You just got back from an amazing vacation—the kind you’ve been counting down to for months. You’re glowing (literally, thanks to all that sun or snow), your memories are fresh, and you’re already dreaming about going back. Then it hits you: I’m buying a vacation home there! It sounds dreamy and maybe even cost-effective in the long run.
But before you get too swept up in vacation nostalgia, let’s slow down and talk through five important things to consider before you take the leap into buying a vacation home.
1. Do I really love the location?
Sure, it was the perfect getaway. But ask yourself: would you still love it after the fifth or tenth visit? Would going to the same spot year after year feel cozy or a little too routine? Some people end up with vacation home regret—not because they dislike the place, but because they feel guilty spending money and time traveling elsewhere, knowing their second home is sitting unused.
Just something to chew on before you commit.
How easy is it to get there?
Vacations are supposed to be relaxing. But if getting to your vacation home turns into a logistical headache—flights, long drives, connections—you may find that excitement fading fast. It’s worth asking: will the commute to my vacation home feel exhausting after the second or third time going? Is it easy to both fly and drive to the location, just in case one is not available?
What risks come with the location?
Beachfront views are dreamy, but hurricanes and flooding? Not so much. The same goes for wildfires and other natural hazards. These risks don’t just mess with your travel plans—they can seriously inflate your insurance costs. If your dream home is in a high-risk area, vacationing during certain times of year may not even be feasible.
2. How will buying a vacation home affect my retirement plans?
Let’s break this down for both sides of the retirement fence:
If you’re not retired yet:
Make sure this purchase doesn’t derail your long-term savings goals. It’s easy to overlook hidden costs—maintenance, insurance, taxes, travel, and all the little things that add up. You need to factor in not just the mortgage, but also what this home will cost you every year, including when you’re retired.
If you’re already retired:
Having a vacation home can be incredibly rewarding—you’ve got the time to really enjoy it now! But don’t assume the costs will be minimal. Even everyday expenses like groceries, toiletries, and dining out can be much higher in popular tourist destinations. Spend a week or two in the area and track your spending. It might surprise you.
3. What are some of the expenses of owning a vacation home?
Let’s talk about the costs:
Insurance & Location Risks:
Where you buy your vacation home really matters. Homes in high-risk areas come with higher insurance premiums—and sometimes require additional policies (like separate flood insurance). Always check with a local insurance agent before you buy. Not all homes are even insurable!
Mortgage & Taxes:
If you’re financing, include that mortgage payment in both your current and future (retirement) budgets. Same goes for property taxes—and yes, plan for them to go up over time. A financial advisor can help you balance your equity, cash on hand, and timing before making a call.
Ongoing Maintenance:
Unless you’re in an HOA that handles the exterior stuff, plan for 1–3% of your home’s value annually for upkeep. Think lawn care, pest control, pool maintenance, seasonal tasks like gutter cleaning—the list adds up quickly.
Repairs & Replacements:
Eventually, everything wears out. Roofs, appliances, plumbing—you name it. Salt air near the ocean? That’ll age your furniture, flooring, and fixtures faster than you’d expect. Keep a separate emergency fund for this stuff—it’ll save you from financial headaches later.
4. Can I Actually Get a Mortgage for a Vacation Home?
So you’ve made it this far in the buying a vacation home decision process, and now you’re wondering: How am I going to pay for this place? A mortgage might be your go-to option, but keep in mind—it’s not quite the same as getting a loan for your primary home.
Here’s what you need to know:
Expect a Different Lending Experience
When you apply for a mortgage on a second home, lenders look a bit closer at the numbers. They’ll consider your credit score, debt-to-income ratio, and the overall housing market before giving the green light.
Interest Rates Are Usually Higher
Even with stellar credit, second-home mortgages often come with slightly higher interest rates. Why? Because from a lender’s point of view, a second home = more risk. If things get tight financially, guess which mortgage gets paid last?
Get Ready for a Bigger Down Payment
You’ll likely need to put down 10% to 30% of the home’s value up front. That’s a big chunk of cash, so make sure your financial foundation is solid before committing.
Mind the Debt-to-Income Ratio
Most lenders want your monthly debt payments—including this new mortgage—to be less than 45% of your gross monthly income. That can be tricky, especially if you’re retired and not pulling in a traditional paycheck.
If you’re already retired, this is often the biggest hurdle. The good news is, it’s not impossible. Many lenders just want to see six months (or more) of reliable, repeatable income—like pension payments, Social Security, or IRA withdrawals. It’s a good idea to prep that paperwork early.
5. Don’t Forget: Insurance & Estate Planning Still Matter
Before closing, connect with your insurance agent to make sure your new home is properly covered. That includes your homeowners policy, umbrella liability insurance, and possibly even adjustments to your life insurance.
Also—don’t skip the estate planning step. Especially if you’re buying in another state, you’ll want to talk to your estate attorney. Different states have different rules around property ownership, probate, and inheritance. You don’t want your loved ones tangled up in two sets of probate courts down the road.
Final Thought: The Market Has Shifted—And That’s Good News
The vacation home market was booming in 2020 and 2021, but demand has cooled off quite a bit since then. In fact, last year marked one of the slowest years in a while for second-home purchases. If you’re thinking of buying now, that could actually work in your favor. With fewer buyers in the mix, you might have more negotiating power—depending on the location, of course.
Bottom line?
Buying a vacation home can be an absolute dream—or nightmare, if you went in with no prep work. Run the numbers, test the lifestyle, and make sure it fits not just your heart, but your long-term financial plan too. This may be the perfect time to check out our Financial Goals Planning Blog to get your creative dreams on paper!