Buying a vacation home might seem like the getaway that you’ve always dreamed of. But you should be aware of all that can go into buying and owning one. You’ll need to consider factors like whether you already own a home, whether you intend this to be an investment or just a getaway, what it will cost you and more.

Paying for a Second Home

People who buy a second home often pay cash. A 2017 research study from the National Association of Realtors found that although only 13% of primary homebuyers pay cash, 29% of vacation homebuyers pay cash.

That makes sense, since getting a mortgage for your vacation home might be difficult. Your lender might require a higher credit score than for a first home and mortgage rates are likewise often higher. And in general you’ll need to put down a larger down payment for a second home – sometimes as much as 30%.

If you can’t put down cash on your vacation home, but want that weekend getaway, you still have options. If you own your first home outright or have a healthy amount of equity, you can tap into that equity to pay for your vacation home or fund the down payment.

You can use your equity by getting a cash-out refinance of your first home, known as a home equity loan or a home equity line of credit. There’s a downside to this, however. You can deduct the interest only if the loan used to buy a second home is secured by that home, not your primary residence.

What Type of Home is It?

You’ll need to consider how you plan on owning and using your new property. From a financing and tax viewpoint, you’ll have to label your home as either a primary residence, a second home or an investment property.

If it’s a primary residence, you can buy it for a minimum of 3% down, as long as your loan isn’t more than $417,000, and get significant tax benefits as a homeowner. That might be a good fit for you if your vacation home is the only property you actually own. Some millennials now rent apartments in cities, but buy vacation homes outside of the city, since they can get a larger home for less money.

If you can’t think of a reason to rent out this new vacation home when you’re not there, but already own a primary residence, you’ll probably want this to be your second home. Mortgage rates and tax benefits for second homes are the same as mortgage rates and tax benefits for primary residences (though obviously you won’t qualify for any first-time homebuyer benefits). If it’s a second home, you can go there any time you want, but lenders won’t allow you to rent it out. You can buy your second home for 20 percent or more down, and qualify for the loan using your full primary residence cost in addition to your full second home cost.

You can classify your home as an investment property, which you may want to do if you’re planning on renting it out when you’re not living there. You can still use the home as a residence whenever you’re not renting it. However, rates are usually 0.25% or 0.375% higher than rates for properties classified as second-home properties, and your down payment will most likely start around 30%. You qualify for a loan on an investment property using your full primary residence cost as well as your full investment home cost, but you can use rental income to help you qualify for the loan. You get fewer tax benefits, but the extra income you get through renting may be worth a lot more than the tax benefits.

Buy Within Your Budget

You know what your financial goals are, and you should have a pretty good idea of how much you’re able to spend on your vacation home, whether you’re putting down all cash or planning what your month-to-month expenses will be after you take out a first or second mortgage.

If you’re planning on renting out your property, don’t count on that when you estimate what you can afford. You should also take added costs into account when making your estimates, including home insurance, taxes, utilities and maintenance costs. Be realistic when estimating these costs, maybe even over-estimate the costs. Better to be safe than sorry.

If you’re planning on putting down cash, the amount you can afford to pay should be pretty straightforward, although you should consult with a financial advisor if you’re not sure how much you can spend on a home and still achieve your financial goals.

On the other hand, you might not realize what your month-by-month costs will be if you take out a mortgage. SmartAsset’s mortgage calculator can give you an estimate of your month-by-month costs depending on what down payment you can afford, where you’re planning on buying your home and your credit score.

Location Matters

Consider buying inside the United States, and better yet, close to your primary residence. Buying property outside of the U.S. can be complicated and you’ll have to take potentially expensive travel costs into account. In addition, if you buy a vacation home that’s easy to get to, you can get more use out of it. It’s easier to go to a weekend getaway if you only have to take a two-hour train ride rather than a six-hour drive. Purchasing a home close to your primary residence also makes it easier to keep an eye on the property and perform regular maintenance.

However, keep all the seasons in mind when buying your vacation home. Will you want to visit the area in January and July, or just for two or three months out of the year? It might end up being cheaper to rent if you’re not spending a lot of time there.

If you only plan on spending peak summer or winter months at your vacation home and renting it out the rest of the time, you’ll want to make sure that people will rent your property during the off-season. Make sure prospective renters have access to what they might need like stores and hospitals.

If you know the area you’re buying in inside and out, this won’t apply to you. However, if you’re an out-of-towner, you’ll want to hire a local real estate agent who knows about the location you’re looking to buy in. If there are issues you wouldn’t know about such as rental restrictions or seasonal road closures, a local real estate agent can warn you.

The Bottom Line

Buying a vacation home can be a great investment or a great getaway for you and your family or both. However, you’ll want to make sure you’ve planned for potential contingencies so that you won’t be blind-sided by unexpected problems and can make the most of your new property.

That’s true whether you’re buying it as a primary residence, a second home or an investment property. Of course, one of the main personal finance principles applies as well: make sure you can afford to both buy and maintain the property.

Mortgage Tips

• Consider talking to a financial advisor about buying a vacation home. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.

• SmartAsset’s mortgage calculator can help you figure out what a monthly mortgage payment would be for your dream vacation home. It even takes homeowner’s insurance and possible taxes into account. We can also help you calculate your closing costs.

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