Owning a vacation home is a dream come true for many homeowners, offering them a personal retreat for relaxation and a potential source of rental income. Whether it's a cozy cabin up north, a serene lake house, or a luxurious condo with beach access having a second home in your favorite vacation spot can enhance your quality of life and provide memorable experiences for you and your family.
Before you start shopping, there are many costs associated with buying and owning a vacation home, some of which are not taken into consideration until the first bill arrives. Here’s a breakdown of the expenses you’ll encounter as well as other important financial factors to consider before closing.
The costs of buying a vacation home
Buying and owning a vacation home is a big investment. Don’t forget about these eight costs:
1. The mortgage — with increased interest
Your biggest expense is likely to be your monthly mortgage payment. A mortgage on a second home may have a higher interest rate that would be obtainable on one’s primary home.
When you apply with MSGCU by September 30, you only pay $99* for mortgage processing – saving you more than $600 on closing costs. Plus, MSGCU can help with a mortgage for your vacation home in Michigan and Florida. Find a friendly MSGCU mortgage consultant to learn more.
2. Homeowners insurance
Insuring your second home can be more costly than covering your primary residence. Vacation homes are often near locations that make them more susceptible to damage. For example, homes near the beach can be more exposed to storms, while a cabin in the forest may be at risk of wildfires.
MSGCU members are eligible for discounts on home and auto policies. Learn more.
3. Property taxes and utilities
You’ll now be paying property taxes and utility bills on two homes. Property taxes may differ from your primary and secondary residences, too, so make sure you consult with a professional.
4. Maintenance and repairs
Every home needs regular maintenance and occasional repairs – even vacation homes. You’ll have to care for the property’s lawn, maintain the HVAC system, and take care of the many other maintenance tasks that are necessary to keep a home running smoothly. Just like your primary home, this can add up quickly.
5. Security
Because you won’t be there as often as you would be at your primary residence, you’ll want to consider ramping up the security at your second home. You’ll need to pay for a security system and equipment, like a video doorbell and cameras. Make sure to check to see if there’s a regular monthly charge, too.
6. HOA fees
Your vacation home may be in an area that has Homeowner’s Association (HOA) fees. HOA fees can vary significantly, so make sure to ask your realtor. Also ask if homeowners have been charged special assessments above the standard HOA fees for things like roof or foundation repairs.
7. Decor and furnishings
Like your primary home, you’ll also want to furnish and decorate, which can cost a few thousand dollars.
8. Property management
If you’re planning to rent out your vacation home when you’re not using it, you’ll likely need to pay for property management services. This can cost you 8-12% of the rent you’d get for leasing your home.
Reasons to purchase a vacation home
If the noted costs have you wondering why anyone would want a vacation home, fret not. Here are some reasons you may want to consider buying one:
- Vacation. If you always vacation in the same area, it can be worthwhile to purchase a vacation home for your own use, both financially and for the sake of convenience.
- Rental income. Many vacation homeowners will rent out their property to other vacationers, which can provide a steady income stream and help cover mortgage and maintenance costs. Be sure to research the demand in your area of choice before banking on steady rent to make your property affordable.
- Investment. A second home can be purchased as an investment with the hope that it will appreciate over time. Again, do your research.
- Retirement planning. Some homeowners buy a second property with the intention of moving there upon their retirement.
Like your first home, a vacation home is a big purchase that is meant to be exciting. So long as you do your research, you can turn your dream vacation home into a reality. Find a MSGCU mortgage consultant, call us at (866) 674-2848 or (586) 263-8800 and select option 2, or visit any branch office to get started!
*$99 mortgage processing fee offer available for mortgages loans originated and disclosed between 5/1/2024 and 9/30/2024 and saves $646 on mortgage processing when you obtain a mortgage from MSGCU. Homebuyers are responsible for any third-party closing costs including but not limited to home appraisal, home inspection, title, tax, and insurance. A loan amount of $200,000 at an interest rate of 7.000% and an Annual Percentage Rate (APR) of 7.039% has a payment of $1,330.60 with 0 points due at closing. The payment does not include property taxes or insurances, the actual payment will be higher.
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