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How Much Vacation House Can You Afford?

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"Hm?20 percent down on $65M is only $13M. Check. Monthly mortgage payment of $297,613. Can do! I'm good to go!"

Owning your own vacation spot in the Hamptons is a dream for many—which is why prices are so high, of course. But while the $65M mansions get the press, there are many much more modest houses to buy here. If you have the dream, how do you figure out if you have the cash?

The easiest way to borrow money to finance your dream is to borrow against your primary residence. For that to work, you have to have significant equity, of course.
If you want to take out a new loan on a second home, you have to have good credit and significant resources. Lenders know that people are much more likely to default on a vacation house or skimp on maintenance. You'll need a down payment of at least 20 percent and possibly more—maybe up to 50 percent.

Your mortgage company will want to see a debt-to-income ratio of less than 36 percent. You're also likely to pay a higher interest rate on a mortgage for a vacation house.
Here's a calculator where you can plug in some numbers. In the Occupancy Type window click Second Home, and in the "monthly debt payments" window include your current mortgage for your primary house. Try this second home worksheet out too.
Keep in mind, too, the drawbacks of owning a second home. Will you want to vacation there all the time? How will you handle maintenance on a remote house? Landscaping? Will your imagined blissful weekends be about chores? How about security for a mostly empty home?
Don't get too discouraged. A vacation house in the Hamptons can be a source of wonderful memories for generations of your family. And now is a good time to buy, with interest rates low and prices rising slowly. If you can make the numbers work, we doubt you'll regret going for your dream.