Do you own a vacation home?
Question of the week: Do you own a vacation home?
Answer: We do not. But…we sort of do.
Vacation, or 2nd homes, can come in many forms, including per tax regulations, boats and RVs. For the latter to be included, the must contain sleeping area, cooking facilities and toilet facilities.
Whether a condo in Rancho Mirage, a cabin in Big Bear, a sloop in Marina Del Rey, or an RV which spends most of the time at an RV storage lot in Long Beach*, if you use the space for personal use, or 10% or more days than you have it rented for fair market value, the property is eligible for tax deductions.
*The pop ads and other companies that show up when I am on different sites on the internet are very interesting, in part, due to the Googling I do while preparing the WR&MU. I am certain over the next week I will be deluged with ads and opportunities to store my RV or boat, as well as dealers in both with opportunities for ownership.
Please consult tax professional before filing taxes regarding eligible deductions for your primary and secondary properties.
The explosion of opportunity to rent second homes when not using for personal visits due to on-line companies such as AirBnB and Verbo have enabled owners of secondary property to off-set the mortgage, tax, insurance, HOA, maintenance costs of their vacation homes. This off-set has lessened the holding cost of the property, by trading off having strangers occupy your property.
From a mortgage perspective, prior to 2022 second homes were treated the same as primary homes by Fannie and Freddie in regards to costs and fees. In 2022, the Federal Housing Financing Authority (FHFA), the regulatory authority over Fannie Mae and Freddie Mac, increased the pricing adjustments that must be charged for second homes, greatly increasing the rate/price difference between primary and secondary mortgages.
Quick example, purchase a home for $750,000 with 20% down, you have a 740 FICO score and paying 1.25 points for the $600,000 loan. For your primary residence the rate today is 6.375% for a monthly payment of $3743 per month. Using the same price and down payment for a second home your rate is 6.75% with a payment of $3892 per month, or about $150 more per month.
What can get sticky with the mortgage is the line between a second home your rent out from time to time to a rental, and your using it for personal use two weeks a year, or 10% of the days it is rented.
Per the underwriting guidelines, a second home property a lender needs to document the property must be occupied for personal use, available to the borrower’s exclusive use year-round, not subject to a rental or timeshare arrangement, and not intended to be used as an investment property.
If any of the above restrictions cannot be met, the mortgage should be priced and funded as an investment property loan, which raises the rate even further (to 7.125%, or $4043 per month).
“How will they know?” Good question, but if they do an audit and find out the loan is in default and must be paid off. This comes into play if refinancing a property that has been used as both a second home and investment property, i.e. short-term rental when not in personal use, and your tax returns show rental income for the loan submission.
Back to us. We do not have a vacation home, but we do have a few different timeshare contracts with the same company that has enabled us to travel and enjoy comfortable “private space” with our family, friends, or just Leslie and I, throughout the year. Timeshares have a negative connotation for many, and I get that in some/many instances. However, we have been very good about managing our options for time and location, and conversion to enjoy hotel stays domestically and abroad.
This is being written from Palm Desert, where we have been all week. The last time we were here and we were going to one of our “go-to” restaurants for dinner we spoke about how this is our vacation home, due to its familiarity, etc, without year-round costs for mortgage, taxes, etc we would be paying when not using. Plus, we can take our vacation home to other locations some years at no additional cost other than airfare and possibly car rental.
Vacation homes are fantastic for creating memories for families, many are generational, we know many families that are third, even fourth, generations of the family going to the “family cabin” with its memories and traditions.
The important part about second homes and vacations, are less about where they are, than about who you are with and that you are taking vacations to relax, and create those family memories. Whichever option chosen, purchasing a property, timesharing, or picking different places to visit and explore, make sure you take the time to use and enjoy the time and place.
To schedule an initial meeting by phone or Zoom, click here for my calendar, please feel free to forward to a friend or family member!
Have a question? Ask me!
Rates for Friday March 27, 2026: Without major economic news this week, markets are moving based on comments from the White House, and elsewhere, as to what may or may not happen next in the conflict with Iran. The current market reactions to the war are ahistoric, as typically in times of international conflict, especially when the United States is involved, result in lower equity values and lower interest rates. Because of the focus on oil and energy costs rising due to the conflict, investors are worried about inflation, pushing rates higher. The 30-year reaches its highest point since August, the high-balance is at its highest since July.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30-year conforming 6.375% Up 0.125%
30-year high-balance conforming 6.625% Up 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
Thank you in advance to all those who will be replying with comments about my picks for the men’s NCAA basketball tournament getting bounced out last night. I appreciate your thoughts!
It’s back! After what seems like an eternity, but has been 168 days, since the Phillies were eliminated from the playoffs last October, I was able to listen to the radio broadcast of their open day yesterday. Baseball is back and the fans of almost every team have hope to be cheering on their teams in October, and hopefully into November.
Go Phils!
