Buying a Vacation Home on Cape Cod

Many benefits of owning a second home...
Frank Merola is Executive Mortgage Banker for William Raveis Mortgage LLC.

Our sandbar here on Cape Cod is both a wonderful place to live and to vacation. There are many benefits to buying a 2nd home on Cape Cod, but mostly it’s about having a place of your own to visit during the summer, holidays, and for family retreats and gatherings.

The fact that many people from all over the world vacation on Cape Cod is a big stimulus to our economy as these folks spend money on boats, golf, restaurants and shopping.  Much of the stimulus to buy a home here comes from frustration with the expense and hassle of setting up vacation rentals. 

Owning a 2nd home comes with many perks such as the ability to use it whenever you desire, tax benefits and future appreciation.  Some of the downsides are having additional expenses such as property taxes, homeowner’s insurance, maintenance and utility bills. 

What a lender will look at to qualify you for this purchase is your current income, downpayment and existing expenses.  Generally lenders will want your debt, which includes the new mortgage on the vacation home, not to exceed 45% of your monthly income. This percentage is known as your debt to income ratio.  Another factor will be a buyer’s credit score as lenders like to see higher scores when purchasing a 2nd home.

A vacation home can have a downpayment as low as 10% with private mortgage insurance (AKA PMI).  If a buyer is fortunate enough to put 20% down, they can avoid the PMI payment and lower their monthly overhead.

There have been some changes to the 2017 Tax Cuts and Jobs Act (TCJA) so prospective vacation home owners will want to check with their tax and financial advisor for potential mortgage interest and expense deductions.

Vacation homes can be financed with a myriad of mortgage options such as 30 year fixed, 15 year fixed, Adjustable Rate Mortgages, Interest Only Mortgages and Piggyback loans.

One caveat to consider for some of our high-end inventory of homes near the ocean: If a home is near the water in a flood zone, it will require a Flood Insurance policy if the home has a mortgage attached to it. If the home does not have a mortgage, flood insurance becomes optional.  

Almost all mortgage loans these days have no pre-payment penalty. This benefits the many retirees here on Cape Cod as they will buy a 2nd home here roughly 5-15 years before they retire. When they retire and sell their existing primary home, they often times use the proceeds from that sale to pay off their vacation home on Cape Cod in order to be mortgage fee.

Retired, “mortgage-free” and living on Cape Cod. Sounds pretty awesome…….

Frank Merola

Executive Mortgage Banker

NMLS Mortgage Loan Originator ID: 1020051

William Raveis Mortgage LLC NMLS ID #2630

Cell 508-740-5922

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