What’s the Best Way to Finance the Purchase of a Vacation Home?

Owning a vacation home comes with countless benefits, like being able to draw passive income from renting and visiting your chosen location whenever you like. However, financing a second home doesn’t always feel possible, even if you’ve got the available assets. Therefore, we’ve gathered together five different funding methods to point you in the right direction.

Traditional Mortgage

Just as you did when buying your first home, you might be eligible for a traditional mortgage. However, lenders tend to have stricter requirements when you buy a second home because there’s a higher chance of defaulting. However, that doesn’t mean it’s impossible to get accepted by mortgage lenders in North Carolina, but you should familiarize yourself with the requirements ahead of time.

Home Equity

If you’d rather explore alternative avenues, you can use money tied to your primary home to finance your second property. However, if you wish to do this, you’ll need to have existing equity. In general, lenders permit you to use no more than 80% of your home’s value (minus any mortgage payments owed) to secure funding for a vacation home. To work out the amount of equity you have, reduce your remaining mortgage from 80% of your total primary property value.

Second Mortgage

An alternative means of benefiting from existing equity is to take out a second mortgage, which is another fixed loan. Again, the majority of lenders allow no more than 80% of a home’s value to be taken as a second mortgage, and the cash can be invested for the downpayment on a second property. Because your funds are released as soon as the application has been approved, the requirements are much stricter.

Private Lenders

Unfortunately, many people aren’t eligible for a traditional mortgage, even though they have the means to make the payments for their vacation home. In this case, people seek out private lenders including investors, friends, and family members. Private lenders will decide on their own T’s & C’s, and qualifying is typically much easier. However, as they’re investing in you instead of the trading market, the interest on repayments will be significantly steep.


If you’ve got wealth tied up in possessions, other homes, or various trading markets, you can liquidate these assets and invest them into a vacation home. When dealing with enormous sums of cash, you need to put appropriate measures in place to protect your assets. For example, putting your cash in a safety deposit box keeps it outside of the bank but leaves it available to use. Spending so much money in one go will feel daunting, but you need to remember why you want the vacation home in the first place.

When you’re looking to buy a vacation home, knowing where the funds will come from is the most crucial step. Make sure you explore every option available to you and shop around for the best rates before committing. If you end up using a private lender, read the entire contract and check for any hidden costs.

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