Buying a vacation home in Florida is exciting. While you’re house hunting, you’ll quickly find many similarities to the process of buying your “full-time” home. However, there are some big differences and a few pitfalls to be aware of.
Whether you’re browsing Kissimmee homes for sale or other exciting locations around Florida, keep reading for a few tips for buying your dream vacation home.
Vacation Home Location
Where do you want to be? In central Florida, you may have decide between being close to all the action near Disney or choosing a more serene home for sale in Clermont. Florida isn't just all about beaches and amusement parks, many people vacation here because of the wildlife and amenities. All of these can be great choices for different people.
First, you must consider your lifestyle. Is this a place you’ve visited often? Would you want to retire here? Is there a market to rent it out and cover the costs of ownership since you won’t be there full time?
Unlike a primary residence, vacation homes have new tax consequences, different financing options and different things to think about in terms of location.
Vacation Home Financing Options
Speaking of costs, have you calculated the carrying costs if you don’t rent it out?
First and foremost, be sure to check with your lender or banker to see how this investment would work for your financial situation. It’s also a good idea to consult your financial (CPA) or tax advisors. We aren’t offering financial, tax, or legal advice here, so please be sure to do your own due diligence before pursuing a home.
As with any other home investment, you can borrow money to complete the purchase. Buyers have a few options to choose from: HELOC or second home mortgage.
If you have sufficient equity in your personal home, it might be possible to borrow on that, called a Home Equity Line of Credit (HELOC). This type of loan typically has lower interest rates, is easier to qualify for, and varies based on market conditions. However, it does put your personal residence at risk if something goes wrong (if you can't pay the mortgage).
Traditional Second Home Mortgage
Another more traditional financing method could be a second home mortgage. It’s based on your income, credit score and down payment just like any other traditional loan.
Where a vacation home or second home loan differs is that typically, the down payment is larger than what you probably put down on your owner-occupied property. Owner-occupied purchases can require a down payment somewhere between 0-20%. Second-home financing is more likely to be in the 20-25% or more down payment range. This is because, to the bank, it’s a higher risk of default (because you have another place to live and might be willing to walk away). Therefore, a higher down payment means more ‘skin in the game’ for you as the owner, which makes the lender happy.
Shop around for options as you consider what you’re committing to. Every lender is different and has various rules for purchases like this.
Vacation Home Insurance
Insurance is another element of the process that is critical to research. Get a couple of quotes for the area you plan to buy in.
Buying a second home in specific locations require particular types of insurance. For example, flood insurance might be required if you’re at the beach or by a river. The FEMA ranks locations based on their likelihood of flooding, and you can buy insurance to cover you in the event it happens.
In some cases, information is not available to establish flood-free elevations, and a flood study might be required on the potential home. Be aware that this inspection can cost thousands of dollars you didn’t expect.
In addition, most insurance companies will charge you a premium on a home you don't live in for the same reason that a bank wants more down payment. There's a higher risk to a property you don't live in and there is a higher chance of damage. Do your research and lean into the expertise of your real estate agent to direct you to the right professionals.
HOA Fees For Vacation Homes
If you purchased your full-time home in a subdivision, you might be familiar with Home Owners Associations (HOA) or Property Owner Associations (POA). Their fees usually include amenities such as pools, tennis courts, common areas, clubhouses, and neighborhood maintenance, and more.
The fees can range from a few hundred dollars annually to thousands if it includes expensive features like golf courses or building maintenance. It’s likely something lenders will consider as an expense since you are obligated to pay it via the covenants and by-laws. All over Florida, there are communities designed specifically as vacation homes. Vacation homes in Kissimmee will often have high HOAs but come with features that will make your new vacation home much easier to rent out to vacationers.
Speaking of covenants and bylaws, be sure you get a copy to read and review, so you understand the restrictions. Parking is usually a big deal when considering vacation spots. High rise, beach condos can have very limited parking, so you need to read and understand what you’re buying.
If you are planning to use this as an income property as well as a vacation home, make sure renting it out is allowed by the HOA. You don’t want any surprises after you close on it.
Vacation Home Rental Options
Management Companies For Vacation Companies
HOAs usually hire a management company to take care of the day to day tasks of due collections, maintenance requests, and covenant violations. Don’t confuse this with Property Management Companies that are used to handle renting out your units, cleaning and potential repairs that might need to be done.
Property management would be something you’d most likely have to pay for outside of the HOA fees, so be sure to factor this in during your consideration.
Online Rentals (AirBnB, VRBO, etc.)
One last thing to consider is income opportunities for your new home. If you won’t be there full time, it makes sense to look at opportunities to use it for income. Be sure to look at the tax benefits, income stream, and expenses to fully capture the benefits.
Are you ready to buy your vacation home? Don’t go at it alone. It is always a great idea to include a real estate professional in the conversation, and we’d love to help. Contact us today, and we’ll do all we can to make sure this is a time to celebrate your success.