Types of Retirement Plans

Before using retirement funds to buy a second home, you will first need to understand the various types of retirement plans available and the differences between them. Here is a brief overview of the most popular retirement plans in the United States and Canada:

United States

• 401(k): A 401(k) is a retirement plan offered by many companies as a benefit to employees. Generally, an employee can contribute by diverting part of their paycheck into the plan. Many employers will also provide matching contributions as an added bonus. The money in a 401(k) grows tax-free until withdrawn, at which time the account holder will pay income tax on the money taken out.
• Individual Retirement Arrangement or “IRA”. Traditional IRAs are retirement plans that are mostly opened and managed by people themselves. Pretty much anyone with taxable income can contribute to a traditional IRA. For those that don’t have access to an employer’s 401(k), an IRA may be appealing. Tax advantages are similar to a 401(k) where contributions reduce your taxable income and the money grows tax-free until withdrawn. However, there are also important differences between traditional IRAs and 401(k) plans, including the contribution limits.
• Roth IRA. The main difference between a Roth IRA and a traditional IRA is when the tax benefits are realized. With a traditional IRA, your contributions reduce your taxable income but you pay tax when the money is withdrawn. Alternatively, with a Roth IRA taxes are paid on the contributions themselves, but the money can be withdrawn tax-free at retirement. For those individuals that expect to be taxed at a lower rate in retirement, which is the most typical scenario, a Roth IRA may not make the most sense. If the opposite is true, then there may be some benefit to opening a Roth IRA. One of the benefits of a Roth IRA, which is further discussed below, is that early withdrawals are permitted without penalty subject to certain restrictions.

Canada

• Registered Retirement Savings Plan or “RRSP”. An RRSP account permits the account holder to contribute a certain amount of money each year while reducing their taxable income based on their contributions. Once withdrawn, tax is payable thereby permitting you to defer taxes until retirement.
• Tax-free Savings Account or “TFSA”.  Similar to an RRSP, a TFSA is a registered savings account that can hold savings and investments. But unlike an RRSP, contributions don’t reduce your income. Instead, all amounts in a TFSA are based on after-tax dollars and all income earned in the account is tax-free even after it is withdrawn. 

Tax Implications and Other Considerations

The information in this article is provided for information purposes only and does not constitute tax advice. As everyone’s circumstances differ, be sure to speak to a qualified tax advisor.

Now that we have a better understanding of the different types of registered plans, let’s take a closer look at some of the tax implications.

Tax Implications in the US

• 401(k): Generally, if you make any withdrawal prior to the age of 59½, you’ll pay a 10% early withdrawal penalty in addition to income taxes on the amount you withdraw. Withdrawals after the age of 59½, on the other hand, are taxed at your ordinary income tax rate. So age matters. There is an exception, however, where the IRS allows for penalty-free distributions before the age of 59½ in hardship-related circumstances. To qualify, you, your spouse, or a dependent must experience “an immediate and heavy financial need” and the amount you withdraw must be “necessary to satisfy the financial need.” The purchase of a second home would typically not meet this requirement, absent other circumstances. 
• IRA: Similar to a 401(k) plan, any withdrawal prior to the age of 59½ will typically be subject to a 10% early withdrawal penalty in addition to income taxes on the amount withdrawn. And while first-time home buyers are allowed to withdraw up to $10,000 without incurring the 10% penalty, this doesn’t apply to a second home. 
• Roth IRA: With a Roth IRA, you can take out your contributions (as opposed to earnings) at any time without paying taxes and penalties since it’s after-tax money. As soon as you start withdrawing earnings from the account, the amount is typically treated as taxable income. Further, any withdrawal of such earnings prior to the age of 59½ will typically be subject to a 10% early withdrawal penalty. 

In short, unless you’ve reached the age of 59½ and/or you are withdrawing an original contribution amount from a Roth IRA, early withdrawal penalties can be pretty steep.  

Tax Implications in Canada

• RRSP: While the Canadian government does permit first-time homebuyers to withdraw up to $35,000 per year from their RRSP to cover the cost of purchasing a home, the program is not available to purchase a second home. Instead, there are a number of taxes and fees for early withdrawal. In addition to income taxes, you’ll also pay withholding taxes of:
  • 10% on amounts up to $5,000 (5% in Quebec)
  • 20% on amounts over $5,000 up to and including $15,000 (10% in Quebec)
  • 30% on amounts over $15,000 (15% in Quebec)

So if your highest marginal tax rate is 31% and you withdraw over $15,000, more than 60% of that amount will be subject to income and withholding taxes. That’s a steep price to pay. Also, keep in mind that you’ll permanently lose your RRSP contribution room following a withdrawal. 

• TFSA: One of the benefits of a TFSA is that the amounts invested are after-tax dollars. Thus, you’re free to withdraw funds from your TFSA without penalty. Keep in mind, however, that withdrawals will only be added back to your TFSA contribution room at the beginning of the following year. If you over-contribute, you will be subject to a penalty of 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account. 

Other Considerations

Even if you’re comfortable with the penalties, most financial experts will advise that withdrawing funds early from a retirement account is generally a bad idea. Not only will you lose the value of tax-free growth from your retirement account, but it may be difficult to catch up. For instance, let’s assume you withdraw $20,000 from your retirement account to buy a vacation home and plan to repay the entire amount back in seven years. Let’s also assume that, before withdrawing the money, you were earning a reasonable 6.00% annual return. Had you left the money alone, in seven years it would have been worth more than $30,000. Instead, you will now need to come up with an additional $10,000 just to catch back up. Yikes! To make matters worse, you likely only saw a fraction of the original $20,000 after paying all of the early taxes and fees. 

Alternatives to Using Retirement Funds

Before using retirement funds to buy a second home, consider one of these alternatives:

• 401(k) loan: If permitted, a 401(k) loan may be a better alternative if you need money to buy a second home. That’s because the fees associated with a 401(k) loan are lower than a simple 401(k) withdrawal. While qualified 401(k) loans are penalty free, if you leave your current employer the repayment period accelerates to that year’s tax filing date. If your loan is not repaid by then, the remaining balance is treated as taxable income. Also keep in mind that you typically can’t make new contributions while you’re paying back a 401(k) loan. 
• HELOC and other home equity loans: If you have equity built-up in your existing home, then a home equity line of credit or other home equity loan may be the preferred option. In addition to offering flexible financing terms, the cost of borrowing is often lower than a personal loan or other form of unsecured loan.
• Low-down payment mortgage: If you’re struggling to save up for a down payment on a second home and a home equity loan is unavailable, consider whether a low-down payment mortgage is available. In such cases, you may only need 5% to 10% down. Note, however, that most lenders will require 20% or more down on a second home. 
• Government tax credits: While not a complete solution, there are certain government programs that provide access to grants and tax credits. For instance, both the United States and Canada have programs in place where environmentally responsible improvements to your home are made and there are many other programs. 
• Fractional or shared ownership: Buying a fractional or shared interest in a property is a great way to keep costs down. Whether it’s a timeshare in a sunny beach destination or a family cabin shared with relatives, you can greatly reduce your cost of ownership.

Otherwise, don’t rule out the possibility renting instead of owning if the financial strain of ownership is too great.

The post Using Retirement Funds to Buy a Second Home: What You Need to Know appeared first on Vacation Property Online.

Be sure to explore other articles from Vacation Property Online on the best places to buy a vacation home. 

Palm Beach

Contained within an 18-mile long barrier island between the Intracoastal Waterway on the west and the Atlantic Ocean on the east, Palm Beach is one of the easternmost towns in Florida. The climate is tropical rainforest. Summers are hot and humid and winters are warm and slightly dryer. Palm Beach is home to famous resorts, opulent mansions and historic landmarks. Looking for things to do? If beach days aren’t your thing, how about, golfing, boating, fishing, shopping and nightlife?. For these reasons and more, Palm Beach is one of the best places to buy a beach house in Florida.

Statistics*

• Population: 8,836
• Median Age: 68.5
• Median Household Income: $105,700
• Median Housing Value:  $1,363,000

*Source: United States Census Bureau and BestPlaces.net

Fort Lauderdale

Located 25 miles north of Miami, Fort Lauderdale has 7 miles of beaches straddling the Atlantic Ocean. Known as the “Venice of America”, Fort Lauderdale is home to 165-miles of inland waterways. With a population of 182,760, it is also the tenth largest city in Florida and has a relatively young population with a median age of 42 years. From sports and recreation to arts and entertainment there is also lots to do in Fort Lauderdale.

Statistics*

• Population: 182,760
• Median Age: 42
• Median Household Income: $64,313
• Median Housing Value:  $394,800

*Source: United States Census Bureau and BestPlaces.net

St. Augustine

Roughly 40 miles south of Jacksonville, St. Augustine is the nation’s oldest city, having been originally founded in 1565 by Spanish explorers. St. Augustine enjoys 42 miles of beaches, from Ponte Vedra Beach in the north to St. Augustine Beach and Crescent Beach in the south. Local attractions include military forts, stately castles, scenic nature trails, museums, historical reenactments and of course beaches.

Statistics*

• Population: 14,329
• Median Age: 48
• Median Household Income: $60,455
• Median Housing Value:  $352,100

*Source: United States Census Bureau and BestPlaces.net

Naples

Located in the Gulf of Mexico in southwest Florida, Naples is known for its high-end shopping and golf courses. If you love spending time at the beach then you can’t go wrong with the white sandy beaches that Naples is also known for. For those nature enthusiasts, it is also in close proximity to the tropical wilderness of The Everglades. Second only to Palm Beach, Naples has one of the highest median ages in our list and is a popular retirement destination.

Statistics*

• Population: 19,155
• Median Age: 65.4
• Median Household Income: $118,141
• Median Housing Value:  $399,000

*Source: United States Census Bureau and BestPlaces.net

The Panhandle

The Florida Panhandle stretches for 200 miles along the northwestern region of Florida, with the Gulf of Mexico to the South. While mostly rural, the region includes several sunny beach destinations including Pensacola, Panama City Beach and Destin. The Panhandle is an outdoor enthusiast’s dream with year-round boating, hiking, canoeing, kayaking, scuba diving, snorkeling, camping and fishing. In Pensacola, real estate prices are the most affordable of any region in our list. Perhaps not surprisingly, it also has the youngest median population on our list at 36.8 years. In Panama City Beach, you will find one of the top 3 beaches in the United States according to TripAdvisor. Finally, in Destin you find many beaches to relax and endless fun at the Destin Harbor Boardwalk.

Pensacola Statistics*

• Population: 54,312
• Median Age: 36.8
• Median Household Income: $56,199
• Median Housing Value:  $183,800

Panama City Beach Statistics*

• Population: 18,094
• Median Age: 43.5
• Median Household Income: $65,253
• Median Housing Value:  $361,100

Destin Statistics*

• Population: 13,931
• Median Age: 41.9
• Median Household Income: $81,468
• Median Housing Value:  $490,400

*Source: United States Census Bureau and BestPlaces.net

St. Petersburg and Clearwater

Located on a peninsula separating Tampa Bay from the Gulf of Mexico, “St. Pete/Clearwater” enjoys 35 miles of white-sand beaches. With close proximity to a major city center, the area has a lively cultural scene and no shortage of things to do. Whether you prefer shopping at Central Avenue, snorkeling at Egmont Key or exploring the boardwalk shops in John’s Pass Village & Boardwalk, there’s something for everyone at St. Pete/Clearwater.

St. Petersburg Statistics*

• Population: 258,308
• Median Age: 43.1
• Median Household Income: $60,798
• Median Housing Value:  $284,100

Clearwater Statistics*

• Population: 117,292
• Median Age: 45.2
• Median Household Income: $50,335
• Median Housing Value:  $268,600

*Source: United States Census Bureau and BestPlaces.net

Best Place to Buy a Beach House In Florida: Honorable Mentions

• Amelia Island
• Pompano Beach

The post Best Place to Buy a Beach House in Florida: Our Top Six appeared first on Vacation Property Online.

As a real estate investor and owner of a vacation home, I explore these questions in greater detail in an effort to help you answer the question: Should I Buy a Vacation Home?  

Why Do You Want to Buy?

Initially, ask yourself why you want to own a vacation home. Have you always dreamed of owning a vacation home to share with friends in family? Or perhaps you’re interested in owning a vacation rental? If, for instance, you’re interested in buying a vacation home primarily for investment purposes, then you will have a much different set of criteria to focus on then say someone looking to buy a family cabin. In short, understanding the motivation behind buying will help better inform your decision so that you can focus on the specific questions to ask.

No matter your motivation, however, here are some things you should consider before buying a vacation home.

Financial Considerations

Can You Afford it?

Determining whether you can afford to buy a vacation home is perhaps the most important consideration. A good rule of thumb is that your total debt to income ratio, inclusive of any debt owed on your primary and secondary residence, shouldn’t exceed 43%. So if your total monthly debts are $2,000/month and your gross monthly income is $7,000, you would have a reasonable debt to income ratio of approximately 28.5% ($2,000 / $7,000). If, on the other hand, your ratio exceeds 43%, then you will either need to reduce your debt or increase your income. Generating rental income from your vacation home while it’s not in use is one such way to increase your income assuming your lender will give you credit. If so, you can expect to receive credit for up to 70% of fair market rents. 

For a better understanding of how much vacation home you can afford, try our Can I Afford a Vacation Home Calculator.

Is It Better to Own or Rent?

Ask yourself how much you plan on using the property and whether you’re okay with taking on the risk and responsibility that comes with ownership. If you plan on using the property for several weeks a year, are comfortable handling most of your own repairs and have the ability to generate revenue from it while it’s not in use, then perhaps buying a vacation property is worth it. From a pure investment perspective, compare different scenarios to see if it’s better to own or rent. If, for instance, real estate is expensive in the area you’re interested in but rent is cheap, then it may be better to rent. The extra money you save could then be invested in something else.

For a useful comparison of owning vs renting a fractional vacation home, explore our article Fractional Vacation Home Ownership: Is it Worth it? In the article you will also find useful inputs such as historical home appreciation assumptions and alternative investment scenarios.

In terms of the responsibilities that come with ownership, keep in mind that owning a vacation home is not truly passive. Even if you pay someone to manage the property or take care of maintenance, you will still need to deal with unexpected issues as they arise and annual obligations related to property taxes, insurance and other matters. If you’re looking for something more hands-off, then perhaps renting is the better option. 

Is It a Good Investment?

Investing in real estate is often seen as a good investment as real estate tends to appreciate over time. You also have the ability to generate rental income and leverage the bank’s money at cheap interest rates. Yet the stock market has historically outperformed the housing market and offers a much more passive investment. Still, there’s no simple answer, especially given the uncertainty as to whether one investment type will outperform another in the future.

If you’re buying on pure speculation that housing prices are going to appreciate significantly then I recommend against doing so unless you have a high risk tolerance. On the other hand, if you can secure a reasonable interest rate on a mortgage and have the ability to generate rental income, it may just be a good investment over the long term.

Be sure to check out our investment property calculator, which provides a comparison of the expected return on investment from a vacation home vs the stock market.

Weighing the Pros and Cons

Any response to the question should I buy a vacation home will need to take into account the pros and cons of owning a vacation home. Here are a few that come to mind:

Pros

• Pride of ownership.
• Spend quality time with friends and family.
• Real estate is a fairly secure investment without the same volatility as other asset classes. 
• Borrowing is affordable, even if interest rates are typically higher for second homes.
• Ability to generate short term rental income.

Cons

• Additional carrying costs could put a strain on finances and/or delay retirement.
• From an investment perspective, the stock market may in fact be more attractive over the long term.
• Ownership is not passive. 
• In my experience, you may not use the property as much as you would like.

For a more complete overview of the pros and cons of owning a vacation home, explore our article here on everything you need to know before buying a second home.

What It’s Like to Own a Vacation Home

Having owned a vacation property for several years now, I can attest to the fact that, in many respects, the joy that vacation home ownership brings is truly priceless. Sure you can likely rent a comparable property but there’s something special about owning your own property. And while studies have shown that experiences bring more happiness than possessions, you get the best of both worlds with a vacation home. After all, you can take pride in ownership all the while enjoying the experiences with friends and family along the way.

Yet, I also need to deal with certain realities, including the following:

• Unexpected issues such as water/fire damage or theft do arise from time to time
• As I rent out my property while it’s not in use, I need to report my income to the appropriate tax authority
• For peace of mind, and in order to comply with the terms of my insurance which require my property to be vacant for no more than 30 consecutive days, I had to hire a property manager to check-in on the place from time to time.
• My annual maintenance costs total approximately $7,000, which is equivalent to approximately 1.0% of my home’s value. This is on the low end of the general rule of thumb that you can expect to spend 1 to 4 percent of your home’s value every year for maintenance. As such, I expect this amount to increase over time. 
• With my second child on the way, we’re at risk of outgrowing the property

While these items are specific to my personal circumstances, the point is that it’s a big commitment owning a vacation home. Still, I have never regretted buying my  property.

Should I Buy a Vacation Home? Final Thoughts

Before buying a vacation home, take the appropriate time to better understand the implications of doing so. Do your research, talk to your financial adviser and discuss other people’s experiences as vacation home owners. Importantly, get to know the area you’re interested in and rent before you buy to ensure it’s an area you can see yourself spending a significant amount of time. 

The truth is, the only person that can answer the question “should I buy a vacation home” is you. Good luck!

Be sure to also explore my guide on how to buy a vacation home.

The post Should I Buy a Vacation Home? Suitability, Finances and More appeared first on Vacation Property Online.

Fortunately, this doesn’t mean you’re out of luck. There are still many ways to obtain vacation home financing today.

Different Types of Vacation Home Loans

Despite the unique current state of the market, you have options when securing vacation home loans that might include a second mortgage or HELOC. Here are the most common options.

Second Mortgage

If you own a property now and have enough equity in it, you might be able to borrow against it to buy a second home. A second mortgage usually has slightly higher interest rates because the loan is in second lien position which means a higher rate of default. Second mortgage loans have fixed interest rates and you receive the funds in one lump sum.

Cash-Out Refinance

Another way to tap into your primary home’s equity is with a cash-out refinance. If you have a high interest rate on your first mortgage right now, you might even save money with a cash-out refinance by lowering your loan’s interest rate.

A cash-out refinance allows you to tap into up to 80% of your home’s equity. First, the funds pay off your existing mortgage. Any difference in funds between the loan amount and your loan payoff are yours to use for your vacation home.

HELOC

A home equity line of credit or HELOC is a form of a second mortgage on your primary residence. You borrow a line of credit, much like a credit card, and use the funds as you need. You only owe interest on the amount you withdraw. In the US, this typically goes on for 10 years. After such time, the loan goes into repayment where you owe both principal and interest. In Canada, most HELOCs have an indefinite term where you can either make interest-only payments or also repay the principal.

If your HELOC has a variable rate of interest, make sure you can afford the ‘worst case scenario.’ 

Traditional Mortgage

When considering vacation home loans, you could choose a traditional mortgage for a second home. Just keep in mind, the interest rate on second home loans are typically 0.5% – 0.75% higher than rates on a primary residence.

Different Sources of Vacation Home Loans

Since vacation home financing can be harder to get, there are different sources of loans you can tap into to get the most affordable loan on the best terms.

• Banks – Your local bank can be a great resource if you have great credit and a good relationship there. The process can take longer at banks, though, so keep that in mind.
• Credit unions – If you belong to (or can belong to) a credit union, check out their rates on vacation home loans. They often offer competitive rates and terms.
• Mortgage lenders – Mortgage lenders only offer mortgage loans which differs from the full suite of products and services that banks offer. For this reason, the process usually goes faster and they usually have more options, which is good if you have less than perfect credit.
• Private lenders – If the above sources don’t work out, private lenders usually offer options for people with unique financing circumstances.

How to Qualify

Qualifying for vacation home financing will vary based on the source you use. For example, a mortgage lender often has the most options and can work with many credit types and situations. A private lender usually assumes more risk too, which gives you another option if you have less than perfect credit, but it comes at a price such as higher rates and less attractive terms.

On average, you’ll need the following to qualify:

• At least a 640-credit score
• A 20% down payment
• A debt-to-income ratio that doesn’t exceed 43%
• 2 years of stable and consistent employment and income
• Cash reserves (liquid assets)
• No recent bankruptcies or foreclosures

How Much Can You Afford?

Try the calculator below to determine how much vacation home you can afford.

How to Secure a Vacation Home Loan and/or Increase Borrowing Capacity

Securing vacation home financing is a bit more difficult than primary residence financing, but here are some ways to increase your chances of approval:

• Improve your credit score

The higher your credit score is the more likely you are to get approved. Not only will you get approved, but you’ll get better rates and terms which can increase your borrowing capacity. Take care of late payments, pay down credit cards, and don’t open any new credit leading up to your mortgage application.

• Pay down your credit card debt

Keep your debt-to-income ratio as low as possible by paying down any consumer debt, especially credit cards. This leaves more room for a vacation home loan payment in your DTI.

• Put down a large down payment

Second homes usually require a much higher down payment than primary residences. You’ll need at least 20% down, but if you can afford a higher down payment, you’ll increase your chances of approval and your borrowing power. 

• Stabilize your income and employment

Lenders look for stable employment and increasing income over the last couple of years. Show employment stability (you don’t change jobs often) and that your income remains steady or increases regularly).

• Shop around

Get pre-approved at several lenders (including different types) to see what options you have. For example, if a credit union gives you a lower rate, you might have more borrowing power compared to going with a mortgage lender that’s charging higher rates.

Final Thoughts

Vacation home loans might be a little harder to come by today, but there are still many options. The key is to improve your credit score and lower your debt-to-income ratio to show you are a good risk. The more money you have to put down on the home too increases your chances of approval because it lowers the bank’s risk and increases your ‘skin in the game’.

The post Vacation Home Loans: Everything You Need to Know About Your Financing Alternatives appeared first on Vacation Property Online.

But before buying a vacation property that will be your primary residence, there are several things you should consider first. With this in mind, here’s what you should know.

What to Consider Before Buying a Vacation Property That Will Be Your Primary Residence

Before you buy a second home that will be your primary residence, take the time to consider the following:

Current Needs vs. Future Needs

Consider whether the home will meet your current and future needs. How do you initially plan to use the vacation property? If you will be using it as a vacation rental property, then it will have a different set of considerations from, say, a weekend home. Do you subsequently plan to retire in the home? If so, perhaps a three story property on acreage is not the best choice, even if it would serve as a great family retreat in the meantime. Don’t fall into the trap of focusing on things as they exist today. Instead, consider how the home will meet your needs over the near term as well as the next 10-20 years.

Even if the home doesn’t meet your current or future needs, do you have the ability to renovate it? Since you won’t be living in the home right away, it may be the perfect time for renovations. This could also be a great way to save money by buying a “fixer upper”. And, since 100% of any gain realized upon the sale of a “second home” is taxable in both the US and Canada (more on that later), it may be advantageous from a tax perspective to complete expensive renovations while it is still your second home in order to increase your adjusted cost basis. By increasing your cost basis, it will help reduce any gain realized on a sale and thus your corresponding tax obligation.

Your Circumstances May Change

No matter how much planning you do, your needs and/or circumstances may change. Perhaps your kids live at home longer than expected while they attend university. Or perhaps the opposite is true and your kids move further away to attend university or pursue career opportunities. In the former case, the transition to your second home may be put on hold and in the latter case you may decide that you don’t want to move into your second home altogether. Take the time to ensure you have an exit strategy or a back-up plan in order to deal with a change in circumstances.

Finances

Before buying a vacation property, crunch the numbers to ensure you can afford it. Speak with your financial advisor to determine the suitability of buying a vacation property. As general guidelines, you should expect to come up with at least 20% of the purchase price as a down payment and have a debt-to-income ratio of no more than 43%. Be sure to explore our article on How Much Second Home Can I Afford for more detailed information on affordability criteria.

Assuming you need financing, do you qualify for a second home mortgage? Second home mortgages are harder to qualify for than primary residence mortgages. If you don’t qualify, do you have equity in your primary residence you can cash-out and use to buy the home? Here are a couple of ways to finance a second home using the equity from your primary residence:

• HELOC – A home equity line of credit gives you access to up to 80% of your home’s value minus any outstanding mortgage balances. You can draw from your credit line at any time, and only owe interest on the money withdrawn.
• Second mortgage – You can also take out a second mortgage on your existing home, otherwise known as a home equity mortgage. This loan has a fixed interest rate, and you receive the funds all at once. You’ll then owe principal and interest on the borrowed amount.

Tax Planning

Before making such a significant purchase, speak with a qualified tax professional. After all, decisions you make now may have implications on your tax obligations in the future. While we go into a bit more detail on some of these tax consequences later on, be sure to obtain tax advice both before moving forward with the initial purchase and before converting it into a primary residence.

What to Consider Before Converting a Vacation Property to a Primary Residence

If you already own a vacation property, you should consider the consequences of converting a second home to a primary residence, including:

Mortgage Terms

If you took out a mortgage to buy a vacation property, you may be eligible to refinance it at a lower rate once you live in it full-time. Primary residences have better terms because you’re more likely to pay the mortgage on time and not risk losing your home. You can expect interest rates to be as much as 0.25% – 0.5% higher for second homes. As such, speak with your lender and be sure to take advantage of lower rates for primary residences (if not at the time you convert your second home to a primary residence then when your mortgage is up for renewal).

Don’t forget to consider the mortgage terms of your first mortgage as well. If you’ll be selling your primary residence, ensure the mortgage on that property doesn’t have a prepayment penalty or that you can port it to your second home.

Look at the big picture and determine how you can structure your home financing so that it costs you the least amount of money.

Home Insurance

When you switch your vacation property to a primary residence, you may also save money on home insurance. Just like a mortgage lender thinks a second home is riskier, so does your insurance company.

When you convert your vacation property to a primary residence, your insurance costs will decrease. Talk to your insurance agent about the differences so you know what to expect.

Tax Consequences

Whether you’re in the United States or Canada, there are tax consequences when converting a “second home” to a primary residence. Here’s a summary of things to consider.

Note that tax rules are complex and everyone’s circumstances are different. Accordingly, you should consult a qualified tax adviser in connection with your own tax planning.

United States

• You may get a capital gains exception on the money earned on the sale of your primary residence. The amount you can exempt depends on if you are single ($250,000) or married filing jointly ($500,000).
• If you sell your second home, any capital gains will be taxed as long-term capital gains if you have it for at least one year. The tax rates are 15% or 20% depending on your taxable income. This gives you a “way out” if you decide to sell your second home before moving in full time, albeit with a tax hit on any capital gains.
• When converting your second home to a primary residence, you can get the capital gains exclusion as long as you live in the home as your primary residence for at least two of the last five years. The capital gains exclusion is on a prorated basis, however, depending on how much of the time you owned the second home as a vacation home or other “non-qualifying use”. For example, if you have been living in it full-time for two years after using it for five years as a vacation home, your prorated exclusion limit will equal 2/7 (i.e. 2 years of full-time use over a 7 year period) of the gains. So instead of taking advantage of the full $250,000 exemption, it would be reduced to $71,430 (2/7 x $250,000) to reflect the period during which the property was used as a primary residence.

Canada

• When you sell your second home in Canada, all gains are subject to taxation. This isn’t the case for your primary residence, however. Those capital gains are tax-free.
• If you sell a second home for more than you bought it for, half of the capital gains are included in your taxable income.
• When you convert a second home to a primary residence, the CRA treats it as if you sold the home. This is called a “change in use“.
• If you convert a primary home to a second home, you don’t have to pay capital gains tax up to the point of conversion.
• If you convert a second home to a primary residence, you’ll pay capital gains tax on any gain up to the point you converted it. So if your second home has appreciated $50,000 by the time you move in, half that amount, or $25,000, will be subject to taxation.

Final Thoughts

Before buying a vacation property or “second home” that will be your primary residence, consider the transition carefully. Think of not only how well the home will suit you and your family, but also the financial consequences of the change. In many cases, it can be a strong move financially, but understanding how it works, what it will cost you, and how it will affect your taxes is important before deciding to convert your vacation property to a primary residence.

The post Buying a Vacation Property or “Second Home” That Will Be Your Primary Residence: Important Considerations appeared first on Vacation Property Online.

Corpus Christi

Corpus Christi is in the southern part of Texas. With a population of over 300,000, Corpus Christi is one of the top eight most populated cities in Texas and there is plenty to do there. Whether you love museums, ball games, music festivals or art exhibitions, there’s something here for everyone.

Corpus Christi is home to many beaches including North Beach, McGee Beach, and Whitecap Beach where you can enjoy sun, sand and surf. If animals and reptiles are more your thing, you’ll love the South Botanical Gardens and Texas State Aquarium, both of which are great for kids and adults of all ages. 

Statistics*

• Population: 317,863
• Median Age: 35.3
• Median Household Income: $55,564
• Median Housing Value:  $188,500

*Source: United States Census Bureau and BestPlaces.net

South Padre Island

If you love resort towns, you’ll love South Padre Island. It has a much smaller population of just less than 3,000 people but there is plenty to do! In addition to the South Padre Island beaches, which are incredibly popular at spring break time, there are plenty of recreational opportunities for kids and adults.

You’ll never be bored here, as there are over 40 dining and music spots, outdoor adventures like snorkeling, fishing, or scuba diving and tons of water activities from sandcastle lessons, surfing lessons, and even water parks at a local country club to give you a much needed break.

Statistics*

• Population: 2,066
• Median Age: 58.1
• Median Household Income: $45,221
• Median Housing Value:  $304,400

*Source: United States Census Bureau and BestPlaces.net

Port Aransas

If you’re looking for the best place to buy a beach house in Texas, you’ll find it in Port Aransas. Located just 180 miles south of San Antonio, Port Aransas is home to roughly 3,000 people, making it a quaint town to live in.

Like most beach towns in Texas, there is something here for everyone whether you’re looking for rich nightlife, long strolls on the beach, or to learn more about sea turtles and watch dolphins diving, you won’t be bored here!

Rent a golf cart or bike to take around Port Aransas Beach or IB Magee Beach Park, spend time exploring the many art studios, or check out the many historical museums. Living in Port Aransas is unlike living anywhere else.

Statistics*

• Population: 2,904
• Median Age: 52.8
• Median Household Income: $57,910
• Median Housing Value:  $458,600

*Source: United States Census Bureau and BestPlaces.net

Rockport

Rockport is a slightly bigger beach town with a population of 10,000 people. This beach town is filled with history, food, and plenty of outdoor activities including time at the Rockport Beach.

Of course, most people that live here spend their time at the beach. It’s quiet, relaxing, and refreshing and there’s plenty of opportunity for water activities including boating and fishing. But something anyone who lives in Rockport would tell you is to spend time in the downtown area. You’ll find yourself spending hours shopping, eating, and sightseeing there.

If wildlife is more your thing, there are plenty of opportunities including birdwatching and the Aransas Wildlife Refuge where you can fish, hike, or just sit back and watch the wildlife.

Statistics*

• Population: 10,070
• Median Age: 50.3
• Median Household Income: $58,871
• Median Housing Value:  $240,000

*Source: United States Census Bureau and BestPlaces.net

Port Lavaca

Port Lavaca is more heavily populated than other Texas beach towns with a population of roughly 12,000 people, but it’s still a beautiful beach town with plenty to do and plenty of areas to relax. Port Lavaca is the best place to buy a beach house in Texas if you want plenty of places to relax, unwind, and enjoy nature.

But, if you’re a fan of history, you’ll love the rich history of this town. From historical lighthouses to the Calhoun County Museum, there’s something for every historian here. If you want to spend time at the beaches, Lighthouse Beach and Magnolia Beach both provide quiet areas to sit and enjoy the water. 

There are also plenty of parks, golf courses, fishing marinas and a theater for you to sit back, relax, and enjoy your days.

Statistics*

• Population: 11,557
• Median Age: 36.8
• Median Household Income: $57,748
• Median Housing Value:  $145,700 

*Source: United States Census Bureau and BestPlaces.net

Galveston

Galveston is a great beach town to buy a house for those looking for a higher population. There are over 50,000 people in Galveston, but there is plenty of room for everyone and plenty of fun to have including time at the three main beaches – Stewart Beach, East Beach, and Crystal Beach.

At the beaches, you can swim, relax, fish, boat or kayak, so there’s something for everyone. Or hit the rides at Galveston Island’s Historic Pleasure Pier. Galveston is also rich in history, shopping, parks, natural preserves, and golf courses. It’s like living in a vacation town but it’s your home!

Statistics*

• Population: 54,774
• Median Age: 39.2
• Median Household Income: $50,083
• Median Housing Value:  $281,100

*Source: United States Census Bureau and BestPlaces.net

Freeport

Freeport is located on the Gulf of Mexico and has a population of around 10,000 people. On Surfside Beach and Bryan Beach, you can fish, kayak, surf, paddle board, or jet ski to your heart’s content. You can even camp on the beach! Talk about a relaxing time in your hometown!

Freeport is your town if you love the ocean and outdoors. You’ll feel right at home in this beach town made for everyone.

Statistics*

• Population: 10,696
• Median Age: 26
• Median Household Income: $38,462
• Median Housing Value:  $125,400 

*Source: United States Census Bureau and BestPlaces.net

Best Place to Buy a Beach House in Texas: You Can’t Go Wrong

If you’re looking for the best place to buy a beach house in Texas, then be sure to check out each of the places on our list. There are so many beautiful properties to buy and ways to enjoy the incredible nature, beaches, and the historical beauty of these Texas towns. You really can’t go wrong.

Be sure to explore our other articles on the best places to buy a vacation home, including the best places to buy a lake house in Pennsylvania and the best place to buy a beach house in Florida. 

The post Best Place to Buy a Beach House in Texas: Our Top 7 appeared first on Vacation Property Online.

While there are different meanings of the term “fractional vacation home ownership”, in simple terms such ownership involves several buyers each holding an equal part of title to the vacation property. Fractional vacation home ownership differs from a timeshare in that with fractional ownership you own real estate whereas with a timeshare you have a right to use a property.

There are certainly drawbacks with owning a property with other people because there’s more than one opinion or voice in any decisions pertaining to the property. Yet for many people, the benefits outweigh the drawbacks. With this in mind, let’s take a closer look at whether it’s worth it to buy a fractional vacation home. 

What you Should Know Before Considering Fractional Vacation Home Ownership

Owning a fractional vacation property comes with some unique considerations. Knowing what you should consider before you jump in headfirst into a shared vacation home is important. Here are some things you should think about.

Understand What you Own

Before you buy into fractional homeownership, consider what you own. Is it a traditional ski resort model where you buy a quarter interest and get a quarter use of the property? In this case, you own part of the property, giving you ownership rights, like you would have if you owned a home.

Other ownership models like those of certain private residence clubs give you rights to the club amenities and services, but you don’t have any ownership rights to the property itself.

Rights and Liabilities

Before you buy a shared vacation home, understand the rights and liabilities you’ll have or incur. Do you have pre-determined usage rights where you get to use the property for a portion of the year or is it a pay-for-use situation where you pay for the time you use the property, as do your co-owners?

As far as liabilities or responsibilities, consider:

• Who manages the property?
• Who makes decisions on how the property is handled, renovated, etc.?
• Who pays the expenses? How are they divided?

To get a more detailed understanding of what a property allows/requires, read the organizational documents, including any co-ownership agreements.

Annual Costs

In shared ownership arrangements you pay the proportion of the ownership. For example, if you have 25% ownership, you pay 25% of the expenses. In a pay-for-use approach, you are responsible for usage fees, which come out of your rental income. If your usage fees exceed your portion of the rental income, you’d owe the difference. 

Annual fees typically cover all maintenance costs and reserve requirements to cover the cost of any future updates or renovations.

Financing

It’s often much harder to get financing for fractional vacation ownership. If you can find a lender, you’ll likely have to meet strict requirements and have a large down payment. For this reason, it’s often best to invest in fractional homeownership when you can pay for your portion in cash.

Selling the Property

Owning a property with others means you often can’t decide to sell the property without their consent. In most cases, all parties must be on board. Your organizational documents may prohibit the sale of one partner’s ownership without the consent of every owner. In such circumstances, the only way you may get out of it is by selling to another co-owner.

Is Fractional Vacation Home Ownership Worth it? 

In order to answer this question, let’s take a closer look at renting vs owning a fractional vacation home and whether owning one is a good investment.

Renting vs Owning

When you own a fractional vacation home, you only have rights to it for a part of the year. For this reason, you may be asking yourself whether it would be better to rent a vacation home instead of own a fraction of a vacation home? So let’s consider an example. Let’s say a ski chalet in your favorite winter destination has recently come on the market for $40,000. For the purchase price, you will receive a ¼ interest and four weeks of personal use per year. Annual fees are $1,000 per year, increasing with inflation at approximately 3.0% annually. Let’s also assume that the value of the property appreciates in line with historical norms at 4.0% annually. Instead of buying a fractional interest, you could rent a comparable unit for $200 per night. Under the rental scenario, let’s also assume that rental rates increase with inflation at 3.0% annually and instead of investing $40,000 in real estate you invest in the stock market, realizing an annual return of 8.0% per year (slightly below historical norms). Here’s what these scenarios look like after 10, 20 and 30 years:

Ownership Scenario

Rental Scenario

Using the above scenarios, there doesn’t appear to be a clear winner. In the ownership scenario, you would be further ahead in years 10 and 20 but that changes in year 30 where renting appears to make more sense. Of course, the above scenarios are an oversimplification of the actual calculations and there are various assumptions that could prove to be incorrect. By going through this exercise, however, the answer may be clearer depending upon your circumstances. 

Do Fractional Vacation Homes Make Good Investments

You have many options to invest your money, so is a shared vacation home a good way to use your money? Like any savvy investor, a diversified portfolio is a good idea – it prevents a significant loss should one asset decline in value. But does it make sense to add fractional vacation home ownership to your investment portfolio? Here are some things to keep in mind:

• You only own a fractional interest in real estate, so you will feel less of an impact with the ups and downs of the market. Historically, though, the stock market outperforms real estate. Real estate only slightly beats inflation, whereas stocks have an average annual return of 9% – 10%. But comparing real estate to stocks is in many ways an apples to oranges comparison. Therefore the best situation is to invest in both – diversifying your portfolio.
• If your property is a part of a rental pool, focus on the net proceeds. How much will you walk away with after annual maintenance costs and other required fees? While the rent you bring in may look attractive, the annual carrying costs can pile up quickly. 
• Fractional interests are hard to liquidate. When you invest in stocks or bonds, you can sell them on the open market. When you want to liquidate a real estate investment that you own with others, you often must get their approval. For this reason, there are typically less interested buyers. Given shifting consumer preferences towards fractional ownership, however, that may be changing.

To determine what your rate of return might be based on various input scenarios, try our Real Estate ROI Calculator. 

Final Thoughts

If you are clear on the ownership rights and limitations, owning a shared vacation home can be well worth it. The pride of ownership and enjoyment of the property may outweigh the drawbacks, including the lack of control over decision making and the difficulty in reselling your fractional interest.

If you’re buying the property for investment purposes, you may have other (better) options including renting a comparable property versus owning it. The annual costs, for instance, can be quite high. Yet, investing in real estate is often a wise decision and there are benefits to buying a fractional interest, including being less exposed to market price fluctuations.

The post Fractional Vacation Home Ownership: Is it Worth It? appeared first on Vacation Property Online.

The Difference Between a Second Home and an Investment Property

Lenders must know what you’re doing with a second home since it can have many roles in your life. Any property that isn’t your primary residence could be a vacation home, part-time residence, or an investment property.

A “second home” is a property you use for your personal use. You may use it as a vacation home, visiting only a couple of times a year or as a part-time residence if you live in multiple areas, such as spending the winters in Florida and the summers in Chicago. You might even buy a second home that will eventually become your primary residence.

An “investment property” is a property you rent out to others. Lenders take a vested interest in this because investment properties have a much higher risk. You are more likely to default on the loan if your renter defaults and abandon the property than you would a property you use yourself.

So, while the guidelines in this article generally apply to second homes, lenders may have heightened down payment requirements for investment properties. Keep in mind, if you buy a “second home” in the United States, it must be at least 50 miles away from your primary residence for you to take advantage of the more lenient guidelines for second homes versus investment homes. 

Minimum Down Payment for Second Home

Any time you’re buying something other than a primary residence, you’ll need a larger down payment. Lenders require more “skin in the game” to offset the risk of default that second homes and investment properties have.

Since FHA loans aren’t an option for anything except primary residences in the United States, you’ll need conventional financing or a portfolio loan from a private lender. Either way, lenders typically require between 20% – 25% down on a second home to make it less risky for them. If you use the property as an investment property, they may require an even higher down payment.

In Canada, you may still get away with a down payment lower than 20%, but you’ll pay mortgage insurance on the loan until you owe less than 80% of the home’s value to make up for the risk. If you have a 20% down payment, you’ll increase your chances of securing conventional financing and you’ll avoid mortgage insurance. 

How Does a Higher Down Payment Impact Your Mortgage?

With a higher down payment, this lowers the risk profile from a lender’s perspective since you have more to lose should you default on your mortgage. As a result, you will likely have a larger pool of lenders willing to loan you the money at more competitive rates. This also means that you will need to borrow less money, resulting in lower interest payments over the life of the mortgage and lower monthly payments. Alternatively, you could stick with the same monthly payments that you would otherwise be making with a lower down payment and pay-off your mortgage quicker.

For the purposes of illustration, let’s look at some examples using the mortgage calculator below. Let’s assume you’re interested in buying a condo on the beach for $300,000. A bank is willing to provide you with a 30 year mortgage at an interest rate of 3.0% annually.

Note: for more detailed calculations, including a complete amortization schedule, try our Vacation Home Mortgage Calculator.

Scenario 1: Lower Monthly Payments

Using down payment scenarios of 10%, 20% and 30%, the table below shows the impact on your monthly payment and total interest.

So if you want to save over $250 a month in mortgage payments and more than $30,000 in interest, putting down 30% vs 10% will be the best option.

Scenario 2: Shortened Mortgage Period

If you’re hoping to pay off your mortgage as quickly as possible, then a higher down payment and shorter mortgage period may be a better option. Using the above scenario, let’s say you’re deciding whether to put 20% or 30% down. As illustrated in the above table, your monthly mortgage payment with 20% down equals $1,011.85. If instead you decide to put 30% down, then by making roughly the same monthly payments (~$995.84) you would be done paying your mortgage in 25 years. You’ve now shaved off five years of your mortgage and saved more than $35,500 ($124,265.89-$88,753.13) in aggregate interest payments.

As you can see, under either scenario you end up paying less interest because you’re borrowing less money.

Three Ways to Use Equity from Primary Residence to Come Up with Down Payment

In the US, you can typically borrow up to 80% of the home’s value, but this includes the amount of your first mortgage too. You can usually take out the difference and use it to meet the minimum down payment for a second home.

In Canada, you can borrow up to 65% of the home’s value, using the difference between the loan amount and your first mortgage as your down payment.

So how do you tap into your home’s equity to buy a second home? Here are three simple ways:

Home Equity Line of Credit

A home equity line of credit is a second mortgage on your property with a variable interest rate. It works like a credit card, where you can draw funds, using them how you need and make interest payments only on the amount you withdrew. 

Your interest rate may change monthly and you must make principal and interest payments to repay the amount you borrowed. In the US, repayment of the principal begins after ten years whereas most HELOCs in Canada have an indefinite period.

Home Equity Loan (Second Mortgage)

A home equity loan is a second mortgage with a fixed interest rate. You make principal and interest payments right away and receive the full amount up front. At closing, the lender takes second position on your existing mortgage. You can’t withdraw funds repeatedly like you can with a HELOC, but you have the reassurance of a fixed rate mortgage.

Cash-Out Refinance

A cash-out refinance is a refinance of your first mortgage. You pay off your first mortgage and receive the difference between the new loan amount and the payoff in cash to use as your down payment. Since it’s a first mortgage, it’s less risky for lenders and you may secure a lower interest rate.

Other Qualifying Criteria to Buy a Second Home

To qualify for a loan for a second home, you must generally meet the following requirements:

• Minimum 640 credit score, but a credit score over 700 increases your chances of approval and lowers your interest rate
• Maximum debt-to-income ratio of 43%, which includes the new mortgage and any existing debts
• Strong history of stable income and employment for at least the last two years
• No recent public records, such as a foreclosure or bankruptcy
• Proof you can balance both mortgages without relying on uncertain sources of outside income

Final Thoughts

The minimum down payment for a second home and other requirements are stricter than when you bought your primary residence. This is due to the increased risk profile of a second home. Before securing financing, you’ll need to differentiate between how you’ll use the home. Will it be a second home, or will you rent it out? There’s a big difference to lenders.

You must also ensure you qualify for the loan. Because you won’t live in the property full-time, lenders take a much higher risk lending you money. They’ll do their due diligence, ensuring you are a good risk and can afford the payments in addition to your current mortgage, if your primary residence still has a mortgage.

If you meet the relevant qualifying criteria, you can expect that most lenders will require a minimum down payment for a second home of 20% or more. 

The post What is the Minimum Down Payment for a Second Home? Guidelines, Mortgage Criteria and More appeared first on Vacation Property Online.

How to Buy a Vacation Home: Introduction

As I reflect on the topic of how to buy a vacation home, I am naturally drawn back to when I bought my first vacation home. In particular, I remember how much information was thrown at me. From understanding how much I could afford to weighing the pros and cons of a vacation condo vs a vacation home, there is a lot to take in. Somehow, an experience that’s supposed to be exciting and filled with joy can quickly turn into a stressful one.

With this in mind, in this article I provide a practical guide on how to buy a vacation home. By following these steps, you will be in a better position to ensure a smooth buying experience. So let’s get started. 

For a more complete guide on everything you need to know before buying a second home, explore my article on Buying a Second Home: Everything You Need to Know Beforehand.

Determining Whether Buying a Vacation Home is Right for You

Like any big purchasing decision, you should first determine whether buying a vacation home is right for you. First, you should reflect on why you would like to own a vacation home. For instance, buying a vacation home for family use will have different considerations than buying a vacation rental property. In my case, I purchased my vacation property for both personal use and as a vacation rental. As such, I had to consider it from multiple perspectives. In particular, here are some common reasons to buy a vacation home and relevant considerations for each:

• Personal/Family use. For vacation homes that are primarily bought for personal or family use, it’s important to set reasonable expectations in terms of how much you will actually use the property. In my case, I find I use my property less often than originally expected because life gets busy. When I’m not using it, however, I’m able to rent it out. The last thing you want to do is make a significant investment in something that you won’t get your money’s worth out of. If you’re buying a vacation home with other family members, be sure you have a plan in place to deal with an eventual sale of the property. 
• Vacation rental. When buying a vacation rental, you’ll need to take into account such things as the local short-term rental regulations, the revenue potential of the property, property management, tax implications and other similar considerations. Even if short-term rentals are permitted in the area, if the property is subject to a home owners association or strata counsel, there may be further restrictions in the governing documents. 
• Retirement. Planning for retirement has its own unique set of considerations, especially from a financial planning perspective. Will buying a retirement home early set your retirement back a few years? If so, it might not be worth it. One of the obvious benefits of owning a vacation home in the interim is that you can get comfortable with your new home over time before you move into it full-time.
• Investment. Investing in real estate is often seen as a wise decision over the long term. Yet, historical returns show that real estate has been outperformed by the stock market. Still, there are other benefits to investing in real estate such as generating rental income and leveraging the bank’s money. Try our Real Estate ROI Calculator here to help you determine whether investing in a vacation home is right for you. 

Once you’ve determined that buying a vacation home is right for you, next you will need to arrange financing. 

Arranging Financing

Before arranging financing, you will need to determine how much vacation home you can afford.

How much can you afford

Here are some general affordability guidelines to follow:

• Down payment. Be prepared to come up with at least 20% or more of the purchase price as a down payment as opposed to 5-10% on a primary residence. Second home lenders will typically require larger down payments given the heightened risk of default on vacation properties. 
• Debt-to-income ratio. Your debt-to-income ratio is a measure of your gross monthly income that goes to paying your monthly debt (total monthly debt payments divided by gross monthly income). Second home lenders use this ratio to determine your ability to service another mortgage. A good rule of thumb is to ensure a debt-to-income ratio of no more than 43% overall. 
• Rental income. If you plan on renting out your vacation home while it’s not in use, you may be able to get credit for up to 70-75% of the fair market rents. By doing so, you can reduce your debt-to-income ratio to a more manageable level. Not all lenders, however, will take rental income into account. 

Be sure to also try our Can I Afford a Vacation Home Calculator to better understand how much you can afford.

Explore your financing options

Once you understand your budget, you will need to explore your financing options, which may include: 

• Second home mortgage. When I purchased my vacation home, I took out a second home mortgage. In my case, I put 20% down and my interest rate was slightly higher than an interest rate for a primary residences. In fact, you can expect to pay rates that are 0.25% to 0.5% higher than you would for a primary residence.
• HELOC. If you have equity in your home, you may be able to borrow against it at a reasonable rate by opening a home equity line of credit. A HELOC acts like a credit card where you draw down on it and only pay interest on the amount borrowed. 
• Second mortgage. This is another way to leverage the equity in your primary residence. A second mortgage is a fixed loan on your existing home, much like your first mortgage but in second position, where you pay principal and interest payments on a fixed term.
• Private lender. Where traditional bank financing is not available, private lenders may be an option but be prepared to pay higher interest rates and other fees.

Settling on a Vacation Property Type and Location

Now that you’ve arranged financing, you’re almost ready to search for your vacation home. Before doing so, however, you will need to settle on the property type and location. After all, budgetary constraints could place limitations on where and what you buy.

In my case, I opted to buy a condo given that it represented an affordable alternative to a house and offered convenience and reduced maintenance obligations. Yet others may prefer the space and privacy of a house or cabin in the woods. There’s no right or wrong answer here so you’ll need to decide what’s right for you. 

The area you purchase is also an important determination. In my case, it was important for me to be within a two hour drive of my home given that I wanted to use my vacation home on weekends. For that reason, there were only a handful of locations for me to consider. If you’re still mulling over certain locations, I recommend staying in a vacation rental in the areas you’re interested in so that you can get a better feel for each location.

For a list of some of the best places to buy a vacation property in the United States, explore our articles on the best places to buy a vacation property in California, Michigan and Pennsylvania. For a list of the best places to buy a vacation property in Canada, click here. 

Once you’ve settled on a property type and location, you can then begin searching for a property. 

Searching for a Vacation Home

With the help of a realtor, search MLS listings in the area within your price range. Attend open houses to get a better feel for what is being offered at different price points. Your realtor will also have access to recent sales history so that you know how much properties are actually selling for in your area. In hot real estate markets, you will be expected to have your financing pre-approved and you may have limited ability to include “subject clauses” in your offer. In order to conduct a property inspection, you may want to have a company lined up to do the inspection on short notice, including any relevant experts such as asbestos detection, well testing, elevation certificates for waterfront properties etc.

Submitting One or More Offers and Closing

After finding the perfect property, you will need to submit an offer and, once accepted, close the transaction. Depending upon market conditions, you may also need to submit multiple offers before one is accepted so you may need to be patient. Following acceptance, you will need to sign a bunch of documentation to finalize the mortgage and transfer title to the property. From there, you get the keys and gain possession of the property. 

And that’s how to buy a vacation home. You now have the keys to your very own vacation home!

How to Buy a Vacation Home: Other Tips

• Be sure to work with a qualified tax professional to better understand the tax implications of owning a vacation home
• If you’re buying in a foreign jurisdiction, take the appropriate time to complete necessary due diligence on the area and arrange financing (if available).
• Owning a vacation home isn’t passive and therefore be prepared to deal with annual maintenance obligations and unexpected repairs.

The post How to Buy a Vacation Home: a Practical Guide appeared first on Vacation Property Online.

Pennsylvania is not only home to some of the world’s most beautiful landscapes, but it is also rich in history and culture. Pennsylvania plays a major role in history, from the battlefields of wars that defined the United States to the engineering wonders that helped establish the state. As the fifth most populated state, the region has a lot to offer, from strong career prospects to calm, serene locations where anybody may rest and revel in nature’s wonders.

Whether you want to relocate to Pennsylvania or are simply seeking the perfect weekend getaway, this article is for you as we consider the best place to buy a lake house in Pennsylvania. Now let’s take a tour of the Top Six Best Places to Buy a Lake House in Pennsylvania. Here we go.

Lake Wallenpaupack

This 13-mile-long reservoir, with 52 miles of unbroken coastline and 5700 acres, was created in 1926 and is one of Pennsylvania’s popular holiday destinations. The region was named “Wallenpaupack” by the indigenous Lenape people, which means “The Stream of Swift and Slow Water.” Lake Wallenpaupack’s activities are as diverse as its expansive coastline and are sure to satisfy the entire family.

The lake is bounded to the north by the lovely tiny town of Hawley and several other local centers and lakes such as family amusement parks, resorts, and golf courses, as well as Fairview Lake in Palmyra Town, south of Wallenpaupack. Among the things you can do includes: outdoor adventures like hiking, biking, visiting amusement parks, zoos, historical locations, shopping, and try out different local cuisines.

Median housing value in Hawley:  $230,700 (+5.1% over past 10 years)*

Conneaut Lake

Photo Credit: Wikimedia 

Conneaut Lake is Pennsylvania’s largest natural lake. It was formed around twelve thousand years ago by glacial ice that geologists think was up to a mile deep. The lake has contributed a lot to the state’s economy as it has served as the town’s natural resource for almost 5 decades.

Conneaut Lake is now primarily a resort town, offering an abundance of recreational activities and beautiful landscape views to residents and tourists all around the world. A few activities you can do in the area include fishing, boating, skiing, sailing, swimming, and a lot more. Conneaut Lake is a must-see if you’re seeking a destination that offers both the pleasure of experiencing recreational outdoor sports and a peaceful calming environment.

Median housing value in Conneaut Lakeshore:  $137,900 (+3.0% over past 10 years)*

Edinboro Lake

If you wish to enjoy a relaxed lakeside holiday, Edinboro has cabin lodgings that allow you to immerse yourself in nature’s tranquility in the near vicinity. Edinboro Lake is a 245-acre lake in Erie County, Pennsylvania. The town of Edinboro surrounds it on three sides, and State Route 99 goes for a short distance along the coast.

The lake includes two developed beach sections, as well as a public park, all of which provide for public access to the lake. A popular location among tourists is the Edinboro lake resort. The resort provides several community amenities as well as enjoyable activities such as fishing, boating, and sailing. You may go bicycling, wander around local stores, enjoy local entertainment, and eat local food while exploring the region.

Median housing value in Edinboro:  $216,900 (+3.3% over past 10 years)*

Lake Naomi

If you are thinking of bringing your family to a perfect family vacation spot where both the kids and adults can bond and have fun together, Lake Naomi can offer just that. Nestled in the pristine Pocono Mountains of Northeastern Pennsylvania, is the Lake Naomi Club. It is a recreational community that provides a lot of fun and exciting activities for the family to enjoy.

A 277-acre lake with non-motorized boating, fishing, swimming, and sailing is at the heart of the community. There is also a Community Center with a plethora of amenities such as an indoor pool with a splash park, indoor tennis, fitness center, game room, teen area, and activities for the entire family. Furthermore, given the unique combination of tranquil retreat and nearby shopping, Lake Naomi and Timber Trails provide Pennsylvania vacation homes, rentals, hotels, and summer lake houses a tremendous amount of value.

Lake Naomi real estate prices: as of the date of this posting, a 3 bedroom, 2 bathroom house starts at $310,000

Lake Harmony

Photo Credit: Wikimedia 

Lake Harmony is the perfect getaway spot for adventure lovers. Located at the heart of the Pocono Mountains, lake harmony offers breathtaking scenery of pristine glacial lakes, undulating hills, and lush forests that’s waiting to be discovered and explored. There are a variety of things to do in the area. You can spend the day outdoors doing extreme sports adventures like swimming, skiing, canoeing, biking, hiking, snowboarding, you name it.

In the evenings, can spend a wonderful dinner with your family while admiring the beautiful landscape of the town and the natural surroundings. Another fine attraction you can’t miss on a lovely evening in Lake Harmony are theatre performances and concerts. Everything that you are looking for in an ideal holiday location is here.

Median housing value in Lake Harmony:  $288,500 (+7.5% over past 10 years)*

Canahdota Lake

Originally named Washington Lake, it was renamed Oil Creek Lake in 1860 and Canadohta Lake in 1894 after the renowned Chief Canadaughta of the Cornplanter Tribe of the Six Nations. Canahdota lake is considered one of the many beautiful scenic treasures of Pennsylvania. It is a fantastic place to relax away from the hustle and bustle of city life. It lies in the heart of Bloomfield township in northern Crawford County. Canahdota Lake is a low-cost community that provides a variety of leisure activities that you’ll enjoy on a relaxing weekend day. You may go fishing, sailing, boating, hiking, biking, or simply walking about and admiring the natural beauty of the town. 

Median housing value in Canahdota Lake:  $73,200 (+0.8% over past 10 years)*

Closing Thoughts on the Best Place to Buy a Lake House in Pennsylvania

Mountains, lakes, beautiful woodlands, thrilling activities, recreational sports, a relaxing atmosphere, and a variety of local cuisines are just a few of the many attractions Pennsylvania has to offer. The range of living conditions available here gives alternatives for every price level and lifestyle, making the state a great place for everyone to visit. The places we’ve included here are only a few of the many beautiful places in the state so be sure to explore other areas that may interest you. We hope you found this article on the best place to buy a lake house in Pennsylvania helpful. Good luck in your search.

Be sure to explore our other articles on the best places to buy a vacation home, including the best places to buy a cabin in California, the best places to buy a lake house in Michigan and the best places to buy a beach house in Texas.

*Housing data provided by BestPlaces.net

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