Many people dream of finding the perfect lake house. But once you’ve found it, is it really that easy to buy and finance the home? It is if you follow these four steps.

1. Decide how you will use the home

Before estimating your lake house purchase costs, you need to consider how you intend to own and use the property. You have three options:

  • Primary residence. You can buy for as little as 3 percent down (if the loan amount doesn’t exceed $417,000), and you’ll get the lowest mortgage rates for this type of use.
  • Second home. You can use your lake house with your family and friends, but lenders won’t let you rent the home. Mortgage rates are the same as primary residences. Most lenders require as little as 20 percent down for a second home. You qualify for the loan using your full primary residence housing cost plus your full second home cost.
  • Investment property. You’d rent the home, plus use it when it’s not rented. Rates are .25 percent to .375 percent higher than primary residence or second home rates, and down payment requirements typically start at 30 percent. But you can use rental income to help qualify for the mortgage.

2. Understand the total cost of owning a lake house

You can determine what you can afford in seconds. Then you’ll find a lender and have them dive deeper into:

  • Cash available for down payment, closing costs, and reserves.
  • Total monthly cost of your existing home, plus the total monthly cost of the lake house (including principal, interest, taxes and insurance for both homes).
  • Total cost to manage the lake house, including costs unique to a lake house. One such cost is flood insurance, which is an additional insurance fee on top of your normal homeowners insurance.

You also need to consider budget items that lenders don’t use in their qualifying calculations, but that are still very important for your own financial planning:

  • Total cost for gas, electric, cable TV, and internet.
  • Total cost for furniture and housewares. This is especially important for your budget if it’s a second home or investment property.
  • Total costs to travel to your lake house for your desired number of visits each year (if it’s not a primary residence).
  • Total cost of outdoor gear: kayaks, paddle boards, boats, jet skis, etc.
  • Total cost of property maintenance including dock upkeep, cleaning, and landscaping.

3. Review monthly and transactional cost line items

Suppose you wanted to purchase a lake house in Clearlake, CA for $535,000. Here’s how much it would cost as a primary residence, second home and investment property.

 Primary Residence or Second Home  Investment Property
 Estimated monthly costs
Mortgage payment  $2,043 (30-year fixed mortgage at 4%)  $1,842 (30-year fixed mortgage at 4.25%)
Insurance (including flood)  $175  $175
Property tax  $535  $535
 Estimated cash to close
Down payment  $107,000 (20%)  $160,500 (30%)
Lender fees  $2,500  $2,500
Title/escrow/inspection fees  $3,500  $3,500
 TOTAL ESTIMATED CASH TO CLOSE  $113,000  $166,500

 4. Make an offer

Lake houses are a specialized property type, so it’s best to use a local real estate agent and lender.

Your real estate agent will advise you on all the local nuance on transaction fees, taxes and commissions. In Clearlake, the seller pays one-time transfer tax, but other areas might require the buyer to pay it.

In destination areas, real estate agent commissions can be higher than the national average, and can also be seller- or buyer-paid, depending on the area. Only a local expert agent can advise properly. And, of course, they will structure your offer for you, and negotiate on all facets of the deal that are a priority to you.

Likewise, for destination property areas, a local lender will be comfortable with nuances like appraisals and waterfront lending. Appraisals are much more difficult in less populated areas because properties don’t sell as often. Comparable sales used for appraisal reports can be old and hard to find, especially if the appraiser isn’t from a local bank.

If you follow these steps, your closing will be smooth sailing and you’ll be enjoying your water view in no time.


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