Home Sweet Second Home

If owning a home is the American Dream, then owning a vacation home is the American Dream, Part II. It's the sequel--for those who can afford that special getaway place.

The Financial Side
Weighing the financial factors in a vacation-home-buying decision entails much more than figuring out if you can afford to buy. The first thing you need to do is to investigate your long-term financial ability to carry the property.

That involves paying not only the usual maintenance and repair costs over the years, but also special expenses. If you're at your place infrequently, you may need to hire a local, dependable caretaker to mow the grass, plow your driveway, and check on the property regularly. 

If you need a mortgage, you'll find varying approaches among lenders. Not all lenders offer vacation-home mortgages. Those who do usually charge the same interest rate for vacation homes as for primary residences. You'll pay a higher rate, however, if you intend to rent out your vacation home for a significant portion of the year. Lenders typically require higher down payments for vacation homes. The 2006 NAR survey found that the median down payment among vacation-home buyers was 27%.

Practical Questions
Consider more than finances to decide if buying a vacation home is a wise choice. Are you sure nothing will change in the next 20 years in your personal life or in the area itself? In 20 years are you going to want to be there as badly as you want to be there today? This is a pitfall especially for those who think they'll buy a vacation home now and eventually make it their primary home after retirement.

Perhaps you now have young children who would love to head out with you to your country vacation home. But once they're teenagers, they may be less keen on going away for the weekend with mom and dad, and your vacation home will sit unused.

Also, how do you feel about the prospect of spending all your vacations and weekend getaways at the same place? People ted to feel locked into going because they feel guilty if they don't use it.

A vacation home is a sizable investment--both at the time of purchase and over the years as you keep the place in shape. Too often people are tempted to put the vacation-home dream ahead of more important goals. Buying a vacation home shouldn't mean skimping on other important goals, such as contributing to your 401(k) or saving for college.

Still, for some people, buying a vacation home is a smart move. They have the money, and owning a vacation home truly fits with the way they live. If you have all your ducks lined up and you have more money than you can ever run out of, then go for it. You can afford that luxury.