Do you remember where you were seven months ago? Likely shoveling snow from at least one of the four late season nor’easters to hit New England in March.
If the memory — and the current chill in the air — triggers your escape instincts, then perhaps now is the time to start shopping for a winter vacation home.
Whether it’s a beachfront home or a cabin in the mountains, there are several things to consider before investing in a winter getaway. While much of the same considerations as a primary home purchase apply, there often are stricter financing guidelines for a vacation home.
“There’s an opportunity for it to be an investment. If you choose to, you can rent it out, and you have complete control of when you rent it,” said Sarah Mikhitarian, senior economist at the real estate website Zillow. “At the same time, maintaining two homes can really add up, such as with maintenance and mortgages. And you don’t have zero travel cost — you still need to take into consideration how you’ll get there — from Boston to Florida or from Boston to Vermont.”
Unless it’s a cash purchase, be prepared to put at least 10 percent to 20 percent down on a mortgage, and perhaps even 30 percent, depending on your credit score or assets. As with a primary residence, anything less than a 20 percent down payment requires the buyer to pay for private mortgage insurance. Government backed-loans, like FHA or VA loans, are not an option for vacation homes.
And be prepared to pay more.
“You’ll likely have a higher interest rate on a second home than you would on a primary residence just because it’s a little bit riskier for a bank,” Mikhitarian said.
If you have a lot of equity in your primary home, she added, you can take out a home equity line of credit or a home equity loan, or you can do a cash-out refinance — when you refinance your home for more than you owe, pay off the existing first mortgage, and use the rest of the funds for a new mortgage loan.
Some lenders also require buyers to show that they have enough cash reserves to cover two to six months’ worth of mortgage payments, Mikhitarian said.
“Because it’s a second home, we’re going to be a little more conservative with the underwriting with our ratios,” said Larry Hunter, senior vice president of residential lending at the Institution for Savings in Newburyport. “Generally, the total debt-to-income ratio cannot exceed 36 percent per month. Credit scores would have to be 680 or higher, with no late payments, and they need to put down at least 20 percent.”
Lenders will offer different mortgage products depending on the type of vacation home or condominium and whether the buyer intends on making income from renting the property. If you are purchasing a winter vacation condo, getting a mortgage may be contingent on the viability of the condo association and on the ratio of owner-occupied units over rentals, Hunter said.
“You may run into stricter underwriting guidelines because it’s not a necessity; it’s a luxury item,” he said.
Another thing to note is that closing costs will vary depending on the location. In New Hampshire, for instance, it’s customary that the buyer and seller evenly split the cost of the registry of deeds tax stamp, Hunter said. In Massachusetts, that is typically paid solely by the seller, he said.
There is also the issue of how the new tax reform law passed late last year will affect people who own multiple homes.
“While some tax benefits can be realized from ownership of a second residence, the actual amount of tax savings is often much smaller than many realize,” said Boston certified public accountant Richard H. Stern.
While state and local income and property taxes on all homes owned can be itemized, the new tax law caps the deduction at $10,000. Meanwhile, the mortgage interest deduction cap has been lowered from the previous limit of $1 million to $750,000. The new limits apply to any home loan originated after Dec. 14, 2017. So if you’re planning on buying a winter vacation home soon, you might hit those caps sooner than in the past.
Some vacation home owners may find it more advantageous to use the new standard deductions instead of itemizing, Stern said. For single filers, the standard deduction under the new tax law was increased from $6,350 to $12,000, and from $12,700 to $24,000 for married taxpayers.
“If a taxpayer has sufficient itemized deductions to exceed the [standard deduction] amount, the taxpayer may deduct the higher itemized amount,” Stern said. “Itemized deductions mainly include state and local taxes, mortgage interest, and charitable donations.”
Additionally, those looking to offset the cost of a vacation home with rental revenue are advised to familiarize themselves with an area’s short-term rental regulations. A number of vacation communities have begun to crack down on the growing practice. In the South Lake Tahoe region of Nevada, for instance, complaints about loud parties, garbage, and noise from renters led to strict regulations that include $1,000 fines for renters and owners for infractions such as street parking and using hot tubs after 10 p.m. These crackdowns are a worrisome trend given that, according to the National Association of Realtors, 30 percent of vacation property owners planned on renting their homes through short-term rental sites this year, up from 25 percent in 2017.
Not to be overlooked are the risks, and costs, associated with hot and cold climates. Winter vacation home buyers should connect with a local home inspector and look into getting additional insurance coverage for area-specific weather events, like wind or floods.
Whether renting the home or not, real estate agents strongly recommend contracting local companies that can monitor the property regularly and alert owners quickly in emergencies such as break-ins or burst pipes.
“You’d be amazed how many things can go wrong with the property,” said Tim Harper, senior lead agent for Redfin in the Ormond Beach/Daytona Beach area of Florida. “It’s a no-brainer to do something like that. There’s lots of these services here.”
Buying beachside not only means paying more in property taxes and insurance, but also on maintenance because the salt air corrodes things faster, like central air conditioning or a refrigerator, Harper said.
In ski areas, snow removal services are a must, said Aaron Wilson, a Redfin agent based in the North Lake Tahoe area.
“In Lake Tahoe it doesn’t snow by the inch; it snows by the foot. It piles up quickly,” Wilson said, adding that a snow removal contract can run about $500 for the season. If you don’t get one, “You might show up to your house, and there may be 5 feet of snow in your driveway.”
When is the best time to buy a winter vacation home? It varies. Wilson said inventory in the Lake Tahoe region is at its peak in the summer, but in the colder months, there’s less competition.
“That doesn’t mean prices necessarily drop,” Wilson said. “A lot of folks around here are not in a ‘need’ situation, they’re in a ‘want.’ So they’re not in a rush to sell it.”
Nationwide, the vacation home market has struggled to recover at the same pace as the overall housing market, according to Zillow. Vacation home values remain 9 percent below their pre-housing crisis peaks in areas where vacation homes make up at least 10 percent of the market, according to the site. During the 2000 to 2006 boom, vacation homes used to outperform the overall market. Zillow’s latest data show that vacation home values are doing only slightly better than the overall market in the Midwest. In the Northeast, they are on par with the housing market, and appreciating less in the South and West.
“A vacation home, much like a primary residence, is something you shouldn’t try to tie to the market,” Mikhitarian said. “It’s going to be an expensive endeavor and likely going to get more expensive. If having that second mortgage payment is not going to put you in a financial strain, go ahead and purchase that vacation home.”
In Florida, where home prices are relatively low compared with Greater Boston, any time between October and February is the busiest period for vacation home sales, Harper said.
“Whenever that big first snowstorm impacts the north, that’s when my line rings off the hook,” he said. “There will be more inventory and competition. That happens like clockwork every year.”
Send comments to Address@globe.com