What to Consider Before You Buy a Vacation Home

Whether it’s a cozy cabin in the mountains, a beachfront condo or a lakeside retreat, owning a second property gives families the freedom to escape the business of everyday life and create lasting memories in a space that’s all their own.

Approximately 6.5 million homes in the U.S. serve as second homes, accounting for 4.6% of the total housing stock, according to the National Association of Home Builders (NAHB). They’re often used for vacations, weekend getaways or future retirement, and some owners rent them out to generate passive income.

Whether you're a pre-retiree looking for a quiet retreat, a frequent traveler wanting a home base in a favorite destination or someone hoping to build home equity through a vacation home, there are plenty of benefits to owning a second property. However, before you start browsing listings, it's important to understand the full financial picture.

From larger down payments to ongoing maintenance and insurance, the cost of owning a second home can be higher than many buyers expect. Take a look at the most common costs associated with second homes so you can make an informed decision before taking the plunge.

Second Home Loans Often Require a Larger Down Payment

Primary residences have fewer qualification restrictions compared to owning a second home. For primary homes, you can qualify for some mortgages with as little as no down payment or upfront costs. For second homes, you’ll need to prove financial security, and that might come with a larger down payment.

Repeat buyers tend to put down significantly more than first-time buyers, according to the National Association of Realtors (NAR). The average down payment for first-time buyers was 9% in 2024, while repeat buyers put down an average of 23%. In fact, about one-third of repeat buyers skipped financing altogether and purchased their second homes with all cash.

Be Prepared to Manage Two Mortgage Payments

In addition to your current mortgage, buying a second home means taking on another monthly mortgage payment if you're not purchasing with all cash. This can be a significant financial commitment, especially if you’re still paying off your primary residence.

Housing costs accounted for nearly one-third of total monthly expenses in 2023, according to the Bureau of Labor Statistics. These costs can vary widely depending on factors like income level, household size and location. If your second home is in a high cost-of-living area, your monthly expenses may be even higher due to increased property taxes, insurance rates and utility costs.

Unless you’re planning to pay cash for the second property or have already paid off your primary home, you’ll need to budget carefully to ensure you can comfortably handle two mortgage payments at once. Lenders will also evaluate your debt-to-income ratio to determine whether you can realistically afford another loan, so having a strong financial profile is essential.

Factor in Higher Homeowners Insurance Costs

Before you can close on a second home, most mortgage lenders will require you to have homeowners insurance in place. Even if you only use the property occasionally, you’ll need to maintain coverage year-round to protect your investment.

Insurance premiums vary based on several factors, including the home’s location, condition and how you plan to use it. For example, if your second home is located in a high-risk area — such as a coastal region prone to hurricanes or an area vulnerable to earthquakes — you may need additional coverage like earthquake or flood insurance. These aren’t typically included in standard homeowners' policies and can significantly increase your annual insurance costs.

How you use the home also matters. If you plan to rent out your vacation property, a standard homeowners policy may not offer sufficient protection. In that case, you’ll likely need landlord insurance or a short-term rental policy, both of which come with higher premiums but offer more comprehensive coverage for tenants and rental-related risks.

Understand the Tax Implications 

No matter how often you use your vacation home, you’ll still be responsible for paying property taxes. In some cases, you may also owe income taxes depending on how you use the home throughout the year.

If your second home is strictly for personal use, you can typically deduct mortgage interest, just like with a primary residence under current IRS rules. However, if you plan to rent out your vacation home, the tax situation becomes more complex.

The IRS uses a specific formula based on how many days the property is rented versus how many days you use it personally. This can affect whether your home is considered a rental property or a personal residence for tax purposes — and what deductions you qualify for.

In addition to federal taxes, state and local property taxes will apply. Some states or municipalities offer tax breaks or exemptions, particularly for homes used as primary residences or part-time retirement dwellings, but these often don’t extend to second homes.

It's a good idea to consult a tax professional to understand how your vacation home will impact your tax liability and which deductions or benefits might apply.

Beware the Cost of Utilities and Upkeep

Whether you’re regularly in it or not, you’ll need to maintain your vacation home. The amount you pay varies depending on the home’s purpose, but other costs include:

• Utilities like water, sewage, electricity and gas
• Homeowners Association (HOA) fees
• Repairs and replacements
• Lawn care
• Pool maintenance, if applicable
• Home furnishings and appliances
• Property management and household cleaning services, if applicable

For those who plan on renting out their vacation homes, you might need to pay for other services, like a property manager or a cleaning service.

The Bottom Line

Owning a second home can be a great investment for retirees, pre-retirees or anyone who wants a personal getaway without the hassle of booking lodging for every trip. It offers convenience, comfort and the potential for long-term value.

But vacation homes come with added financial and practical responsibilities. Beyond the purchase price, you’ll need to budget for ongoing expenses like insurance, taxes, and utilities, as well as upkeep and maintenance, even when you're not there. From hiring property managers to handling repairs, owning a second home requires time, planning, and resources. Before making the leap, consider all aspects of ownership to ensure it fits your lifestyle, budget, and long-term goals.

Check out our down payment assistance programs here.