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How exciting to dream of having your own cabin on the lake to gather family and friends for memorable outings. Owning a vacation or second home can bring joy, happiness and a lot of great memories. This guide explains how to finance a vacation home, what these homes cost and what to weigh before you buy.
The 2017 National Association of REALTORS (NAR) Investment & Vacation Home Buyers Survey covered 2016 purchases. In that survey, 42 percent of vacation buyers bought to use the home for vacations or as a family retreat. Another 18 percent bought for future retirement.
But before you start making those dreams come true, you first should get a preapproval for that second home. That is the advice of Paul Mitchell, who was a Senior Loan Originator at Austin Capital Mortgage in Houston when he gave it.
“This will be your second home loan. So, you need to know if you qualify, how much your payments will be, and how your day to day finances will be impacted,” he adds.
How can you finance a vacation home?
In 10 months of 2025 data from NAR’s REALTORS Confidence Index, 57 percent of vacation-home buyers paid all cash.
If someone does not pay with cash, they usually go with a conventional loan, Mitchell says. In other words, it is a loan the government does not insure or guarantee, such as one that lenders sell to Fannie Mae or Freddie Mac. Most mortgage companies offer conventional loans which range between 10 and 30 years.
Mitchell says that FHA and VA loan options are only available for your primary residence. However, a VA loan may be an option if your second home is going to be your new primary residence. A USDA loan has the same rule, and USDA must also designate the area you are buying in as rural.
Some buyers use the equity in their primary residence to make the downpayment on their vacation home. Others use a cash-out refinance on their primary home, because they have built substantial equity. You might also be able to get a home equity line of credit (HELOC) on your primary residence. You could use it to buy the second home or to cover the downpayment. This way, you don’t have to refinance your current mortgage.
You also may want to consider buying the vacation home with other family members or friends. Each person who wants to be on the loan must apply as a borrower. Co-borrowers can share one application or each complete a separate one, whether or not they are married.
What is the median price of a vacation home?
In the 2017 NAR survey, the median vacation home price was $200,000 for 2016 purchases. Vacation buyers most often chose a beach location. Others bought on a lake front or in the country.
But remember, the price of vacation homes has everything to do with the location. Prices in some areas of the country are much higher, especially along the coasts and in bigger cities.
Find a real estate agent that understands second homes
For a second home in a resort, recreational or vacation destination, look for a realtor with that expertise, Mitchell says. They do understand the tax implications of a second home and the vacation lifestyle market. They can help you decide later whether you need a property management company for when you are away. In addition, they can estimate how much rent the place could bring in when you are not using it.
The NAR offers specialized training and support for agents who work in this niche market. As a result, you can look for a Resort and Second-Home Property Specialist (RSPS). Mitchell adds that you should pick an active realtor who lives and works in the area you are choosing.
What should potential vacation home buyers think about way before they purchase?
“First, I would figure out how much I will use it,” says Mitchell. “And then figure out if the place is rentable if you aren’t going to use it. It could help recoup the money you are spending on it.”
What is considered a vacation home?
To lenders, Mitchell says, a vacation home has to smell, look and feel like a vacation home.
“It can’t be two blocks away from your current primary residence, otherwise it would be an investment property,” he says. “It has to be next to the water, in the mountains, on a lake or out in the country.”
Fannie Mae’s rules set no distance or location test, though. Under its guidelines, you must live in a second home for part of the year and keep exclusive control of it. The home must be one unit and suitable for year-round use. And if you plan on getting rental income from the property, that can’t help you qualify for the loan. However, rental income can help defray the costs of owning a vacation home.
Income is the biggest factor in qualifying
“The biggest factor to keep in mind is whether or not you qualify from an income standpoint,” Mitchell explains.
Both houses come with taxes, insurance and upkeep. If your monthly income is tight to cover all of that, a loan to finance the vacation home may be hard to get.
“We follow guidelines, and if it doesn’t work, you either have to find additional funds or another borrower to sign for you, buy down the interest rate or put down a little more,” he says.
