You occasionally need to escape the noise and take in nature. You might have even had your eye on a small home by the sea or a lodge with a view of the mountains.
Here are some things to think about when you’re ready to buy if your idea of paradise is a cottage-style home outside of the city.
What Is A Cabin Or Cottage?
Small, rustic homes are often referred to as cottages or cottage-style homes. The terms “cottage” and “cabin” are frequently used synonymously. While “cottage” describes rural homes made of a range of materials, including wood, brick, and stone, “cabin” applies to a log home or other wooden building. A shelter used for camping or hunting that has minimal to no facilities is also referred to as a “cabin”.
Cottages and cabins are frequently utilized as vacation homes, even though they can be used as primary dwellings. Many purchasers searching for modest rural properties already reside in cities or suburbs as their primary residence. These purchasers may have summer or weekend escape plans to the beach, lake, or woods with their cabin.
Frequently, conventional mortgages can be used to finance cabins and cottages. When buyers intend to utilize the property as a second home, they may encounter stringent rules and other issues.
A Step-by-Step Guide to Buying a Cabin
Before you begin, would you like to learn more about the cabin-buying process? Here is the general procedure you should adhere to when purchasing your second house.
Start the process of purchasing a home.
Get authorized to find out what you are eligible for.
Beginning My Approval
1. Select a Location
Are you searching for a picture-perfect cottage in the North Carolina woods, a stone cottage on the coast of Maine, or just a rustic hideaway close to your Cleveland home?
Where you go on vacation frequently depends on where you reside. Here are some things to think about when choosing the location of your vacation home:
How it feels: To find the ideal cottage home for you, search places in the neighborhood where you plan to buy it.
The weather: You should visit the cottage at different times of the year to assess whether the location is ideal for you if you intend to stay there for several seasons.
Consider the features that are most important to you. Do you need a beachfront home with a dock, or can you make a small financial sacrifice by relocating closer to the lake?
Risks and taxes: Can you afford the higher homeowners insurance premiums that living close to the coast can entail? Are the property taxes here or in the town less expensive?
2. Decide your needs.
Once you’ve determined a cottage or cabin will serve as your private getaway, it’s critical to ascertain what you require from the home itself. Then consider:
The number of rooms you require: If you intend to host guests frequently, you’ll need an additional bedroom or bathroom. One bedroom, a bathroom, and a few hundred square feet can be sufficient if you’re just seeking a private retreat in the woods.
What you can do with your space: Consider how you can modify it to accommodate additional people. Functional accommodations to make the most of your cottage’s square footage include bunk beds and futons. The living room may be small, but the exterior has a sizable deck or porch, allowing you to spend more time outside.
You can find a room that works for you if you are clear about your ideal home.
3. Spend less on your cottage.
Before you start looking for financing for your cabin, you must have money prepared aside for your down payment. Lenders often demand higher down payments for second homes compared to primary properties.
You’ll need to establish a few variables before you can create a plan.
When do you hope to purchase your cottage?
What kind of budget are you working with?
How much of the total can you put down?
For illustration, suppose you had two years to buy a cottage and believed you could afford the monthly payments on a $200,000 cottage. You want to put 15% down but haven’t saved any money for it yet. You will need to put away $1,250 each month for the next two years to accumulate the 15% down payment, or $30,000.
If you don’t have $1,250 to save each month, something else needs to change. You will need to put off saving longer, put down less cash, or purchase a less expensive cottage.
4. Apply and select a lender
When you are certain that you have enough money saved to cover your down payment, you may start the process of selecting a lender and submitting a mortgage application.
It’s crucial to have your finances in order before purchasing a cabin or cottage as a second residence. When you start looking, take the time to determine your budget in detail. This will help you make a strong offer that you can support.
What you need to understand about finding a cabin or cottage is as follows:
It’s Vital to Obtain Initial Mortgage Approval
You’ll be a better-qualified buyer if you get a preapproval letter from a mortgage lender. Additionally, it will reassure the owner of your ideal cottage that you can secure financing at your proposed price. Having your initial mortgage approval prepared will make you stand out to the seller if there are other offers on the cabin.
With a Rocket Mortgage® Verified Approval, you’ll have your lender’s support and confidence, which may make you seem more trustworthy to a seller and increase the likelihood that your offer on the New York log cabin or Northern California A-frame will be approved.
The Requirements May Be Tighter
You need a good credit score to get financing for a vacation home. Additionally, you might anticipate a higher mortgage interest rate than on your principal residence. Because you’ll prioritize making the payments on your primary residence first if your finances are disrupted, second homes are seen as carrying a higher risk by lenders and investors.
Make sure you’re clear with your lender upfront because their policies on what counts as a second home or vacation house vs an investment property differ from lender to lender.
Renting Is A Possibility
When you’re not using the vacation house, you can decide to rent it out. Just be aware that at that point, your lender might view it as an investment property, which could result in a higher rate. If you rent out your property for 15 or more days a year, you must additionally declare the rental revenue on your tax return.
5. Locate a cabin and submit a bid
You can look for a house and submit an offer after your finance is in order. Consider dealing with a real estate agent who is knowledgeable about the market and can assist you in focusing your search on homes that suit your needs.
6. Finish the closing procedure.
You must follow several processes after your offer is accepted before closing on your cabin. It’s a good idea to have a home inspected so that you can fully understand the property’s condition and any work that needs to be done.
To ascertain the value of your property, your lender will also demand that you obtain an appraisal. This makes sure they aren’t giving you more money than the cabin is worth. As part of the underwriting procedure, you will also need to submit any supplementary financial documentation. You can then close on your cabin once that is finished.
What to Think About When Purchasing a Cottage
The decision to purchase a home involves many factors. While many of the same guidelines that apply to buying other types of homes also apply to buying a cabin or cottage, there are a few important distinctions to be aware of. When purchasing a cottage, keep these things in mind.
When Will You Visit Your Cottage?
Is the destination of your upcoming vacation a place you could run away to repeatedly? Some people adore having a second house where they can visit with friends and family. However, if the thought of returning to the same location year after year sounds dull, perhaps cottage ownership isn’t for you, and you might instead think about a timeshare.
What Your Utility Bills And Other Property Costs Will Be
If you own a cabin or cottage, it might make financial sense to turn off certain amenities, like television and air conditioning, when you’re not using them. However, you should use caution when using other utilities.
Don’t forget to take these property fees into account:
Winterizing
When preparing your cottage for the winter, you must plan. Simply turning off the heat could cause the pipes to freeze and burst. On the other hand, if you know you won’t be returning for a while, you can turn off the water and eliminate that issue.
Accessibility
You need to think about road access based on how far your vacation home is. Do you have to go on a dirt two-track to get to your country house, or is it off a paved road? Will your cottage merely be a three-season getaway or will you require a car that can navigate severe snow?
Water
The water supply to your rustic cottage may come from a groundwater source, like a well or spring, as many rural properties are not connected to a city water system. Even if you own your septic system, you’ll probably need to hire a septic firm to maintain it on a timetable based on how frequently the cottage is used.
Environment
You must ascertain whether lake upkeep is your responsibility if your property is waterfront. In some places, the lake bottom is cleaned and pests are sprayed out. Find out if these preventative steps are an extra cost or if your taxes or homeowners association (HOA) already cover them.
What to Budget for in Terms of General Maintenance
If you already own a home, you are aware of the expense, labor, and time involved in maintenance. You could have less to maintain if your cottage is just a getaway where you can unwind at the end of the day. However, if you want your vacation house to function as a full-fledged cottage hideaway, you’ll probably need to invest time and money in keeping it in good condition so that it continues to provide the degree of comfort you want.
What the Required Insurance Costs
When considering requesting a second line of credit for a second property, the expense of insurance may cause you to reconsider. Smaller homes or cottages in the woods might not need a lot of extra insurance. However, if you live near a lake or an ocean, your insurance premiums will probably go up because you’ll need more protection, such as flood or hurricane insurance.
When Is The Best Time To Purchase A Cabin Or Cottage?
Choosing the appropriate cottage is different from choosing a house. Waiting longer to find the ideal vacation house allows you to avoid making compromises on your regular residence because you need a place to live.
When deciding whether or not to purchase a cottage, take into account these perspectives:
Purchase in the fall. Some believe that buying a vacation property in the fall can result in better value and less competition as everyone is looking for a cottage in the spring or summer. Waiting until the off-season, however, ensures that you obtain whatever is left of the real estate market after everyone has gotten their fill. Additionally, it can take 6 to 8 months before you can use your vacation home to its full potential.
If you want to use your vacation property as soon as you acquire it, think about buying earlier in the year. Just be aware that there will be increased competition at this time.
When you’re ready, buy. The most straightforward response is “When is the greatest time to buy a cottage?” may come precisely when you need it. Get your finances in order and wait for the ideal property to become available at the ideal time for you.
Obtain approval to purchase a second house.
Rocket Mortgage® accepts online applications.
Beginning My Approval
What Is the Price of a Cottage?
Any given cottage or cabin’s price will vary greatly depending on its location and size, among other things. Due to the higher price and interest rates for second homes compared to those for primary residences, Redfin claims that purchases are down more than 50% from pre-pandemic levels. According to the same study, the average primary dwelling cost $375,000 while a vacation home averaged $465,000 in value.
The Geographical Variable
Like other real estate, the cost of a cottage varies according to its type, location, and state. A good four-bedroom cottage in a distant area far from water may cost the same as a modest two-bedroom lakefront property on a popular lake.
Ownership Cost
The starting point is the property’s asking price. There are other more expenses to take into account, and each one can range in monthly cost from tens of dollars to hundreds of dollars, depending on the property. When seeking to purchase, keep these additional expenditures in mind:
Taxes
Insurance
Utilities
HOA costs
Stocking and furnishing
maintenance and repair
Transportation
What Is The Best Cottage Financing Option?
You might have choices for financing your cottage, depending on your financial circumstances.
Refinance with Cash-Out
You might use a cash-out refinance if your primary house has a considerable amount of equity. An equity payout in the form of a lump payment is made possible through a cash-out refinance, which rewrites your mortgage and enables you to obtain a new loan. With the money from this cash-out, you might be able to put a down payment on the cottage or even buy it altogether.
Credit line for a home equity
If you have a lot of equity in your house, another choice is a home equity line of credit (HELOC). With a HELOC, you can take up a line of credit against the whole value of your current residence. You can keep your present mortgage in this manner and prevent incurring closing charges. Currently, Rocket Mortgage does not provide HELOCs.
Another Mortgage
The other choice you have is to get a new mortgage, but you should be aware that your lender will need a bigger down payment. While you can put as little as 3% down when buying your primary residence, you’ll need at least 10%, if not closer to 20%, for your second property. Additionally, you’ll need to have enough income to pay a second mortgage, more assets in reserve, and a better credit score. Additionally, if you’re not purchasing a house to use as your primary residence, you won’t be able to qualify for a government-backed loan.
The Benefits And Drawbacks Of Owning A Cabin Or Cottage When Renting vs. Buying
Due to its flexibility to be rented out for brief periods in several locations, renting a cottage may be the better choice for you. You could, however, prefer having a cottage of your own that you can customize.
Before purchasing a cottage, cabin, or other second house designed for vacations, you should think about the benefits and drawbacks listed below.
Benefits of Buying
Buying a cabin or cottage has several advantages to renting, such as:
Extended Use
Purchasing a cottage can be for you if you want to create a special hideaway where you can create memories with your friends and family. Perhaps you envision retiring there one day or using it to host family and friends. Perhaps you also have in mind a rental home that you would own as an investment.
Greater Flexibility To Customize It
Instead of renting, buying allows you to make the house your own over time by adding to it and customizing it. Additionally, you’ll probably accumulate equity over time (although it’s not guaranteed) and you might even sell your cottage for a tidy profit.
Cons of Purchasing
Cons include: It might not be a good idea to purchase a cabin or cottage because
There is a Greater Cost for Associated
The price of owning a cottage is its biggest drawback. If you currently have a mortgage, getting a cottage will require you to take on additional debt and payments. A cottage, mountain cabin, or other vacation property is a long-term investment, and maintenance and repairs can be time- and money-consuming.
You would be imprisoned in the same place.
If you don’t want to visit the same location every time you need a vacation, renting can be a better option. You won’t be able to claim a cottage as your own. However, it also implies that you are not responsible for repairs and that you are free to move at any time.