Is Buying a Vacation Home Within Your Reach?

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Real Estate

Are you dreaming of owning a beautiful beach house, but wondering if it’s financially feasible? Read on to find out.

Today, answering this question is simple. Banks have become more cautious after the credit crisis and have stricter lending standards. This means you don’t have to worry about making a wrong decision when buying a second home. If you don’t have the income, you won’t get the loan.

According to, the formula for determining your eligibility for a loan is straightforward: For most borrowers, banks will only allow a monthly debt payment that does not exceed 36 percent of your gross household income. This means that your existing mortgage, car loan, alimony, student loans, or credit card payments cannot exceed 36 percent of your income. Therefore, the second loan must fit into that 36 percent.

Here’s an example:

If you earn $100,000 per year before taxes, the banks will extend credit to cover up to $3,000 per month in payments, including the payment on the second home.

If you earn $50,000 per year, the total monthly payment limit is $1,500.

However, you may not need that much money. Many resort areas have vacation homes priced between $50,000 and $100,000. A mortgage payment at the lower end of that spectrum could be as low as $270 per month.

If you need to borrow more, loan officers can adjust the debt-to-income ratio for borrowers with exceptional credit records and payment histories. But it’s important to establish a record of paying bills on time and keeping credit card balances low.

For more information on buying a home, check out the links on the next page.


Originally Published: Mar 29, 2011

Afford Vacation Home FAQ

Is it a good idea to purchase a vacation home?

Lending institutions have implemented stringent standards, so there’s no need to worry about making a wrong decision when buying a second home. If you don’t meet the income criteria, you won’t qualify for a loan.

What is the cost of buying a second home?

The mortgage expenses will vary based on the location of your desired property. In several resort areas, you can acquire small houses for $50,000 to $100,000. At the lower end of the spectrum, a mortgage payment could be as low as $270 a month.

How much money is required to buy a vacation home?

According to, banks will provide a monthly allowance for debt that is no more than 36% of your overall household income. This means that your current mortgage, car loan, alimony, student loans, or ongoing credit card payments cannot exceed 36% of your income.

Is it difficult to get a mortgage for a vacation home?

Loan officers can adjust the debt-to-income ratio for borrowers with exceptional credit records and payment histories if you need to borrow more money.

How can I qualify to buy a vacation home?

The most effective way to qualify is to establish a history of paying your bills on time. Additionally, it’s crucial to keep your credit card balances low.

Lots More Information

Related Articles

  • How Mortgages Work
  • How Buying a House Works
  • First-time Home Buying
  • How Credit Scores Work
  • What Your Credit Score Means


  • “Mortgage Calculator.” (March 22, 2011)
  • Howard, Clark and Mark Meltzer. “Clark Smart Real Estate: The Ultimate Guide to Buying and Selling Real Estate.” Hyperion. April 10, 2007.
  • Karpinski, Christine. “Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment.” Kaplan Business. July 1, 2005.


1. What factors should I consider when deciding if I can afford a vacation home?

When considering if you can afford a vacation home, you should take into account your current financial situation, including your income, expenses, and debts. You should also consider the cost of the vacation home itself, including the purchase price, property taxes, homeowners insurance, and maintenance costs. Additionally, you should think about how often you will use the vacation home and whether you plan to rent it out when you’re not using it.

2. Is it better to buy or rent a vacation home?

The decision to buy or rent a vacation home depends on your personal circumstances and preferences. If you plan to use the vacation home frequently and want to customize it to your liking, buying may be a better option. However, if you only plan to use it a few times a year, renting may be more cost-effective. Additionally, renting a vacation home allows you to try out different locations before committing to a purchase.

3. How much of a down payment do I need for a vacation home?

The down payment required for a vacation home varies depending on the lender and the type of loan you choose. Generally, you should expect to put down at least 10% to 20% of the purchase price. However, some lenders may require a larger down payment if you’re buying a second home. Keep in mind that a larger down payment will result in lower monthly mortgage payments and less interest paid over the life of the loan.

4. What are the tax implications of owning a vacation home?

Owning a vacation home can have tax implications, both positive and negative. You may be able to deduct mortgage interest on your tax return, as well as property taxes and some of the expenses associated with renting out the property. However, if you rent out the property for more than 14 days a year, you may need to report the rental income on your tax return. You should consult with a tax professional to fully understand the tax implications of owning a vacation home.

5. How can I finance a vacation home?

You can finance a vacation home through a traditional mortgage or a specialized vacation home loan. Traditional mortgages typically require a larger down payment and may have stricter qualification requirements. Vacation home loans may have higher interest rates but may allow for a smaller down payment and more lenient qualification requirements. You should shop around and compare different loan options to find the best fit for your needs.

6. What are some other expenses to consider when owning a vacation home?

In addition to the purchase price and ongoing maintenance costs, you should also consider other expenses associated with owning a vacation home. These may include utilities, property management fees, cleaning and landscaping costs, and travel expenses to and from the property. You should create a budget for all of these expenses to ensure that you can afford to own a vacation home without putting strain on your finances.

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