Buying a vacation home is more than a dream – it’s a bold step toward building memories, wealth, and freedom. Whether you’re picturing morning coffee with a mountain view or beach days with the family, the great news is this: there are a few creative and powerful ways to make that dream a reality, even if you’re not sitting on a mountain of cash.
Let’s break down the top three ways buyers are getting it done today.
- The Classic 20 Percent Down Mortgage
This is the traditional route and probably the most common. You’ll need 20 percent of the home’s purchase price upfront, plus closing costs. The upside? You’ll get a better interest rate, a lower monthly payment, and skip private mortgage insurance. The downside? You need a chunk of change upfront. But if you’ve got the cash, this option offers long-term peace of mind and stability. - The 10 Percent Down Vacation Home Mortgage
If your vacation home is more than 60 miles from where you live, you might qualify for a second home mortgage with only 10 percent down. That leaves extra cash for furniture, renovations, or just a buffer in your rainy day fund. Just know that your monthly payment will be higher and you’ll have to pay mortgage insurance until you build up enough equity. Still, this option is popular with investors who prefer to keep more money in their pocket for other opportunities. - The DSCR Loan (Investor’s Best Friend)
DSCR stands for Debt Service Coverage Ratio, and this type of loan is built for investors. Unlike traditional loans that care about your personal income, DSCR loans look at what the home can earn. If projected rental income covers the mortgage, taxes, and insurance, you’ve got a shot. You’ll likely need to put down 20 to 25 percent, and the interest rate will be a bit higher, but you don’t have to worry about your personal debt-to-income ratio. These are ideal if you’re planning to run the home as a short-term rental or if you’ve already maxed out your conventional mortgage options.
How to Come Up With the Down Payment
Saving up is one way to go, but there are other creative approaches. You might use a home equity line of credit (HELOC) from your primary home, which lets you borrow against your built-up equity at interest rates that are usually much lower than credit cards. Or, you could borrow from your 401(k). You’ll pay it back with interest, but the interest goes back to you — not a bank.
Final Thoughts
Financing a vacation home doesn’t have to feel overwhelming. With the right strategy and a little creative thinking, you can make your dream getaway a reality.
Just remember, I’m not a lender. Everything here comes from my own investing experience, and it’s meant to educate – not replace professional advice. Before you make any big decisions, talk to a qualified lender or financial advisor to see what’s best for you.