Saving for a Vacation Home: How Seniors Can Plan for the Financial End of Things

Vacation Home

Saving money for a vacation home can be difficult, and when you’re a senior on a fixed income, it can take some creative thinking to make sure you have the funds you need for the perfect getaway. Not only will you need to think about saving for a second mortgage, you’ll also need to consider the extra costs that you’ll incur from taxes and furnishing your new home. Then you’ll need to think about whether you want to turn your vacation home into a rental property when you’re not using it in order to recoup some of your investment.

A good financial plan begins with educating yourself about the real cost of a vacation home. Think about what it will take to make your dream a reality. Of course you’ll need money for the down payment, but you’ll also need funds to cover all the extra costs that come with a home, such as property taxes, utilities, HOA fees, and insurance, just to name a few. The location is a huge factor not only in cost, but in convenience, as the ideal vacation home is far enough away to be a “getaway” but close enough to your home that you can manage the upkeep.

Read on for some tips on how to plan for your vacation home and get everything you want out of it.

Location is key

The perfect vacation home means different things to different people. You may want something near the beach, near a ski resort, or in an area that has lots of restaurants nearby. You might want a home that fulfills needs for your health and well-being, such as a floor plan that works well for individuals with limited mobility. Take into consideration your lifestyle, your budget, and how often you’ll be using the home when you start your search, and gather some info on what the neighborhood is like as well.

Calculate well

Budgeting for something as big as a vacation home means doing some heavy planning. You need to make sure you’re familiar with all the rules of the area first, as some cities, homeowner associations, and resorts make their own set of laws when it comes to properties and amenities. Talk to a real estate agent and an accountant to get a good idea of what you’ll need to set aside.

Don’t forget the upkeep

Vacation homes often need updates when it comes to the kitchen and bathrooms, and these improvements can be pricey if you’re not careful with your budget and planning. One of the best ways to keep your home in good shape is to keep up with repairs and small changes rather than waiting to do them all at the same time. If you’re fairly close to your vacation home and can make a few trips a year for maintenance and upkeep, it will likely save you quite a bit of money in the long run. HomeAdvisor states that the average cost to remodel a kitchen is between $16,348 and $38,800, which is a big chunk of change. However, making green improvements, such as installing energy-efficient appliances or solar panels to the roof, can help you with tax credits as well as save you money on utilities every month, and that’s a great place to start with your budget.

Consider renting it out

While there are certainly downsides to renting out your vacation home, there are many upsides, too, including the fact that you’ll be getting extra income to help pay the mortgage. You’ll need to check and make sure this is an option before buying your home, as well as think about whether you’ll be available for emergencies should something go awry when the renters are in the home, but many vacation homeowners find this to be a great way to balance out the cost of the house.

Saving money for a vacation home starts with a solid plan, so make an effort to consider all your needs before you begin the process. Talk to your family about your plans and garner support and help from your loved ones to help make everything go smoothly.







Choosing a Home Loan

HouseFor most people, buying a home is the biggest financial investment they will ever make. Because of the size of the commitment, most buyers need a home loan. That makes it extremely important to make the right choice when choosing a mortgage.

The first thing you need to consider when getting a mortgage is what shape your credit score is in. Your credit score plays a large role in whether you can get a mortgage and how low an interest rate you can get. The better your score, the lower rate you will get. Most lenders require a FICO credit score of at least 720 to get the lowest rate and some may require a score as high as 750.

Another consideration is what shape your finances are in. Lenders look at your debt-to-income ratio to determine how much you can borrow. Most won`t allow your mortgage debt to be more than 28 percent of your monthly income and your total debt, including your mortgage payment, to be more than 35 percent of your monthly income. If you have a lot of debt, you may want to consider paying some of it off before applying for a mortgage.

Keep in mind that any loan you get will have closing costs associated with it. Closing costs include things such as prepaid taxes and insurance, inspection costs and loan origination fees. Closing costs usually add about 1 to 2 percent of your loan amount, which is on top of your down payment, so keep that in mind as you assess your out-of-pocket costs to secure the loan.

Your down payment amount is important as well. If you are getting a conventional loan, meaning one that meets the standards demanded by Freddie Mac or Fannie Mae, you will have to have a 20 percent cash down payment. If you don`t, you will have to pay for private mortgage insurance. Some government programs, such as VA or FHA loans, require smaller down payments.

The term of your mortgage is also an important consideration. Most people get a 30-year mortgage, which means your monthly payments will be lower, but you will pay more for your house in the long run. Mortgages with 15-year terms have higher monthly payments but also mean you pay a lot less in interest over the term of the loan. Fifteen-year mortgages also come with slightly lower interest rates as well. Another option is an adjustable-rate mortgage, which starts out with a lower-than-market interest rate and then adjusts after an initial term is over. If you get such a loan, you have to keep in mind what interest rates are likely to do and what your payment could increase to once your initial term is up.

If your credit is not so great and you have a bankruptcy in your background, you may still be able to qualify for a mortgage, but be prepared to pay a higher interest rate. Do your research before you start.