In today’s housing market, first-time home buyers are struggling to break into the market. Many millennials are renting for longer than they expected, and buying a home has become an even more distant dream. With many markets still in recovery from the housing crash, potential homeowners face some tough choices about where and how to buy a home.
Should you spend your savings on a vacation home instead of a starter home? Or should you take the plunge on that fixer-upper with great potential as a future primary residence instead of buying something more established? It all comes down to personal preference and financial strategy. Read on to learn more about these two options and how they might fit into your long-term plans.
What Is a Vacation Home?
A vacation home is any residential property that isn’t the primary residence of the owners. Whether you own a second home for investment purposes or for personal use, it’s generally considered a vacation home. A vacation home can be a single-family house, condo, or even a timeshare. It can be located anywhere in the world and can be rented out (or offered as a hosting site) when it isn’t occupied by the owners. Vacation homes are generally purchased as investments, and they are often rented out to bring in additional income.
Why You Might Want to Buy a Vacation Home First
If you’re struggling to get into the market, a vacation home might be a more affordable option for you. Vacation homes are often a less expensive option than buying a primary residence, especially in areas where the housing market is recovering or still quite hot. This makes vacation homes a more affordable option for those who can’t afford to jump right into buying a primary home.
You may also find that it is easier to secure financing for a vacation home than it is to get a mortgage for a starter home. This may depend on your current financial situation and credit score, but it is something to keep in mind. You may also be able to secure lower down payment requirements and get better interest rates on a vacation home loan than you would on a primary residence loan.
Should You Buy a Vacation Home Instead of a Starter Home?
While a vacation home can be a less costly option than buying a primary residence, it is important to consider the costs of maintaining that second home as well. Depending on the type of vacation home you choose, you may have additional expenses beyond your mortgage payment. For example, if you choose to buy a timeshare, you will face ongoing maintenance fees.
If you decide to buy a vacation home first and decide you want to sell it later to buy a primary residence, you may find that the market has changed significantly. Whether you are selling as a vacation home owner or renting a vacation home out, you may have to consider how the market is changing and how that will impact your ability to sell.
For example, if you buy a vacation home in an area where there are vacation home owners, you may be able to sell it relatively easily. However, if you buy a vacation home in an area where most people rent their vacation homes, you may find it more difficult to sell.
Why You Might Want to Buy a Starter Home Before a Vacation Home?
If you are looking to buy a primary residence, you may want to buy a starter home first. You may not be able to afford a vacation home on top of a primary residence, or you may have already invested your savings in other investments. The good news is that buying a starter home first gives you a bit more time to save for a down payment on a primary residence.
This will give you time to save for the larger down payment required for a primary residence purchase. With a starter home, you may also have more flexibility to customize the home to your liking. If you buy a starter home that needs work, you have time to repair and remodel before you sell it to buy a primary residence.
If you are struggling to break into the market, a vacation home might be a more affordable option for you. However, be sure to consider the expenses of owning a vacation home before making a decision. When choosing between buying a vacation home and buying a starter home, you should consider how long it will take you to save for a down payment on a primary residence. Whether you decide to buy a vacation home or a starter home first, it is important to stick to your financial plan. Make sure you have enough saved for a down payment, and include your vacation home expenses in your monthly budget.