Vacation Home Mortgages: Complete Financing Guide
Financial Education Series
Financing Your Dream Vacation Home
A vacation home can provide years of memories and potential rental income, but financing a second property comes with different requirements than your primary residence. Understanding these differences can save you thousands and help you qualify more easily.
🏡 Planning to Buy a Vacation Home?
Get pre-approved to understand your buying power for a second home. Lenders evaluate vacation home loans differently than primary residences, so knowing your options early is crucial.
Vacation Home vs. Investment Property
The distinction between a vacation home and an investment property matters significantly to lenders. Vacation homes typically qualify for better rates and terms.
- • Used primarily by you/family
- • Lower interest rates
- • 10-20% down payment
- • Cannot be rented full-time
- • Purchased to generate income
- • Higher interest rates (0.5-0.75%)
- • 15-25% down payment
- • Can be rented year-round
Key Requirements for Vacation Home Mortgages
Higher Down Payment (Typically 10-20%)
Most lenders require at least 10% down for vacation homes, though 20% is more common to avoid PMI and secure better rates. Some lenders may require up to 25% for luxury properties or buyers with lower credit scores.
Typical range: 10-25% • Best rates: 20%+ down payment
Strong Credit Score (680+ Minimum)
While you can get a primary residence loan with a 620 credit score, vacation homes typically require 680 or higher. Scores above 740 qualify for the best rates and terms.
Minimum: 680 • Recommended: 740+ for best rates
Lower Debt-to-Income Ratio (43% or Less)
Lenders want to ensure you can afford both your primary residence and vacation home. Your total debt payments (including the new vacation home mortgage) should not exceed 43% of your gross monthly income.
Maximum DTI: 43% • Ideal: Under 36%
Substantial Cash Reserves (2-6 Months)
After your down payment and closing costs, lenders typically want to see 2-6 months of mortgage payments (for BOTH homes) in reserves. This demonstrates financial stability and ability to handle two properties.
Typical requirement: 2-6 months reserves • Includes: Both mortgages, taxes, insurance
Distance Requirement (50+ Miles)
To qualify as a vacation home, the property typically must be at least 50 miles from your primary residence. Properties closer may be classified as investment properties with higher rates and down payment requirements.
Typical minimum: 50 miles • Varies by lender: Some require 100+ miles
Interest Rates: What to Expect
Vacation home mortgage rates are typically 0.25% to 0.5% higher than primary residence rates. However, they're lower than investment property rates, which can be 0.5% to 0.75% higher than primary residence rates.
Primary Residence
6.5%
Best rates available
Vacation Home
6.75%
+0.25% to +0.5%
Investment Property
7.25%
+0.5% to +0.75%
Strategies to Qualify More Easily
If you're planning to buy a vacation home in the next 6-12 months, take these steps to improve your chances of approval and secure better terms.
Before You Apply:
- • Build up reserves (6+ months ideal)
- • Improve credit score to 740+
- • Pay down existing debt
- • Save for 20% down payment
During the Process:
- • Get pre-approved early
- • Document intended use clearly
- • Avoid new debt
- • Maintain steady employment
⚠️ Important Considerations
Can You Rent It Out?
Yes, but with limits. Occasional short-term rentals (Airbnb, VRBO) are typically allowed, but full-time rental income usually reclassifies the property as an investment. This can trigger higher rates or even loan acceleration clauses. Check with your lender before renting.
Property Management Costs
Factor in maintenance, utilities, property taxes, and insurance for a property you won't use year-round. Annual costs can easily reach $5,000-15,000+ depending on location and property size.
Tax Implications
Vacation home mortgage interest may be tax-deductible up to certain limits, but rental income (if any) must be reported. Consult a tax professional to understand the full implications for your situation.
Related Resources
Want to learn more about preparing for a second home purchase? These resources can help:
Ready to Explore Vacation Home Financing?
If you're seriously considering a vacation home purchase, get pre-approved to understand your buying power and see what rates you qualify for. Our partners can help you navigate second home financing.