Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Vacation Home
An individual may buy a real estate property for various reasons. It could be a primary residence, a rental property, or a vacation home.
The type of occupancy for purchasing a property is important as it plays a significant role in getting a mortgage for the home purchase. In this post, we will understand what is a vacation home in detail.
What Is A Vacation Home?
A vacation home is a personal property that is not your primary residence and that you use for holidays or vacations.
The financial requirements for a vacation house are different from a rental property or a primary residence. If you receive rental income from your vacation residence, you need to understand how the income is going to be taxed.
For Income tax calculation, the properties are divided into various categories. Primary or principal property is a property that is occupied by the homeowner.
This property can be a house, condominium, apartment, or trailer. The property will be determined as a primary property if the homeowner whether a single owner, married couple or a family resides in that for most of the time a year.
Vacation homes are very different from primary homes. As this property is located in a completely different location from the primary home, it is also called a second home.
As mentioned previously, the owner will use this property for recreation, including vacations or holidays, typically for a few days or weeks every year.
An individual can have any type of property as a vacation house such as a condominium, single-family home, cottage, or cabin.
In addition to providing owners with a place for recreation, you can rent out vacation properties for extra income when not in use.
An individual having a primary residence in Texas can have a vacation house in California and visit there on vacation for a few weeks and rent it out when not in use.
However, there are many things owners need to consider, including how the vacation property is treated for tax purposes.
There may be limits on how long the homeowner can stay in this property at the same time deduct rental expenses.
The sale of a vacation residence does not give rise to the same tax deduction as the sale of a principal home.
How Does A Vacation Home Work?
Owning a second home can be fascinating, however, it’s important to understand what makes this property different from other types of real estate properties.
For example, the minimum down payment required for a vacation residence is ten percent compared to the primary one where the minimum requirement is five percent.
There are other factors that your lender will consider to qualify your property as a vacation property.
- You have to stay in this house for some time every year.
- It should be a detached house with a single unit.
- The property must be accessible annually and must not be a multiple ownership model or timeshare.
- The property should not be managed by rental companies or property management companies.
If you rent a vacation home for more than 15 days per year, you must report the rental income to the Internal Revenue Service (IRS) using Schedule E.
The landlord can also deduct the expenses if the accommodation is considered a private home where the deductible cannot exceed the rental income of the property.
What Are The Vacation Home Mortgage Requirements?
The documents required to qualify for a vacation house mortgage are similar to that of any other type of property. A lender would require the borrower’s credit score to be at least 620 and above.
The minimum down payment required to purchase this type of home is 10%. And the interest rate on this type of property is higher than a primary residence.
Conclusion
Before buying a vacation home, an individual should plan the use of this property, such as recreational purposes only or getting passive income by renting it out.
This way you adhere to the rules set by IRS and ensure that you file your income tax accordingly.
If you are going to take a mortgage to buy your vacation house, you need to understand the factors for qualification as the lender would treat this type of property differently compared to an investment or a primary property.
