Jennifer Riner, Author at Personal Capital

KEY POINTS Take into account your options for mortgage financing, rental potential, and your retirement plans. Location, location, location - figure out if you want to live in a pricey vacation spot. You can use Zillow to find your dream destination that's within your budget. Summer is upon us, and you’ve done your due diligence to determine whether you can afford a vacation home based on financing, rental income potential, retirement plans and your family’s lifestyle. Now that you know you’re ready to purchase a second property, your next dilemma is: Where should I buy? And when am I ready? First, consider how you’ll be applying for a mortgage for your new property and which tax filings to take. Mortgages and Taxes Determine how you’ll primarily use your vacation property from a financing and tax standpoint. For primary residences, you can purchase a vacation home with as little as 3% of the asking price upfront (depending on the loan type) – as long as the loan isn’t higher than $417,000. While low down payments aren’t always recommended, mortgage rates are at an all-time low, so larger, fixed loans aren’t as expensive as they once were. Alternatively, if you’re claiming your vacation property as a second home, you won’t be able to rent it out. In contrast to a primary residence, vacation home loans typically require 20% down. Fortunately, you’ll receive the same mortgage rates and tax benefits as you would with primary residences. Finally, if you plan to rent out your second home, consider claiming it as an investment property. You get the best of both worlds, meaning you can enjoy the space for vacations, but subsidize your estimated mortgage payment with side rental income when you’re not inhabiting the property. The trick, of course, is that 30% down payments and higher interest rates might deter borrowers from opting for an investment property. Once you’ve determined how you will claim your second home, it’s time to pick a destination. Consider these two coastal cities, and the prices in two nearby, popular vacation destinations. NEW YORK The Hamptons, NY The Hamptons are a notoriously expensive vacation destination, where celebrities and socialites go to flee Manhattan’s hot summer months. While East Hampton tends to list houses in the multi-million dollar range, Southampton and Montauk are less expensive options. For example, the median home value in East Hampton is $2,907,500 – and that’s almost a 20% increase from last year. While still high, Montauk’s median home value is less pricey, but still steep at $901,700. Sea Girt, NJ Sea Girt, located in North Jersey, is a typical destination for New Yorkers, as opposed to South Jersey, where Philadelphians tend to flock. Sea Girt is expensive, though. The median home value is $1,559,500. Go a little farther south (but still within North Jersey) and hit Seaside Heights, where the median home value is significantly lower, at $217,900. SAN FRANCISCO Napa Valley Napa, most famous for being in the heart of wine country, is full of lush countryside and beautiful vineyards. The median home value is $502,000, which represents a 6.2% increase since last year. Further, home values are projected to rise another 1.8% through next year, indicating improved return on your vacation home investment. Lake Tahoe Tahoe City is full of outdoor adventures and fun for families. The median home value is dropping, down 5.1% since last year. Currently, the median home value is $644,800, but it is expected to rise another 2.7% this upcoming year. Now may be the opportunity to snag a home before prices rebound. Given how popular the aforementioned vacation spots are, it’s not a big surprise that homes in these areas come with a high price tag. If you want to purchase a vacation home on the coast, you’ll be looking at steeper prices, which mean higher down payments and bigger mortgages, if approved. But, if your heart's desire is just to have a place of your own near the water, check out waterfront vacation homes in New York or in California on Zillow. You’ll be able to customize your search not just by location, but also to include your bedroom necessities, amenities and preferred price point in the general vicinity of a coastal town. And remember, you can monitor your new mortgage, along with the rest of your financial accounts, with the help of a personal finance tool such as Personal Capital. Happy house hunting!

Jennifer Riner

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