How to buy a cabin or cottage in 2023: A step-by-step guide

Occasionally, you need to get away from the noise and enjoy nature. Perhaps you’ve even had your eye on a little cottage near the water or a cabin with a mountain view.

If paradise is a cottage-style house away from the city, here are some factors you should consider while you’re getting ready to buy.

What is a cottage or cabin?

Cottages or cottage-style homes typically refer to small, rustic houses. Often, “cottage” and “cabin” are used interchangeably. While “cabin” refers to a log home or other wooden structure, “cottage” applies to rural homes built from a variety of materials including wood, brick and stone. “Cabin” may also refer to a structure with few to no amenities that is used for camping or hunting.

While they can serve as primary residences, cottages and cabins are often used as vacation homes. Many buyers looking at small countryside property already have primary homes located in the city or suburbs. These buyers might plan to use their cabin as a weekend or summer getaway to the sea, lake or woods.

Often, cabins and cottages can be financed with traditional mortgages. However, buyers can run into strict requirements and other complications when they plan to use the property as a second home.

How to buy a cabin: Step-by-step

Want to learn more about the process of buying a cabin before you get started? Here’s the general process that you’ll want to follow when buying your second home. 

1. Choose your location

Are you looking for a storybook cottage in the North Carolina woods, a stone cottage on the Maine coast or just a country cottage getaway near your home in Cleveland?

Where you live often influences where you travel to get away. Before settling on the location of your vacation home, here’s what you should consider:

• How it feels: You should visit locations in the area where you would like to purchase your cottage house to find one that’s perfect for you.

• The weather: If you plan to stay at the cottage for multiple seasons, you should visit at various times of the year to determine if the location is right for you.

• Amenities: Consider amenities that are important to you. Do you want a waterfront property with dock access, or can you save a little money by living where the lake is a few minutes down the road?

• Hazards and taxes: If you’re near the ocean, can you handle the extra homeowners insurance costs that might come with being in a hurricane zone? Are property taxes cheaper here or in the next town over?

2. Decide on your requirements

Once you’ve decided a cottage or cabin will be your personal retreat spot, it’s important to determine what you need from the actual house. Think about:

• The number of rooms you need: If you plan on having visitors there often, you’ll want an extra bedroom or bathroom. If you’re just looking for your own getaway in the woods, maybe you can get by with one bedroom, a water closet and a few hundred square feet.

• What you can do with your space: Think of ways to make the space adaptable to fit more people. Bunk beds and futons are functional accommodations to optimize your cottage’s square footage. Maybe the living room is small, but the exterior includes a large deck or porch, so you can prioritize time outside.

If you know what your vision for the home is, you can find a space that works for you.

3. Save for your cottage

You’ll need to have money set aside for your down payment before you begin the process of finding financing for your cabin. With a second home, lenders typically require larger down payments than with primary residences.

To build a plan, you’ll need to nail down a few variables.

• How soon do you want to buy your cottage?

• How much money do you want to spend?

• What percentage will you be able to put down?

For instance, let’s say you want to buy a cottage in 2 years, and think you could afford monthly payments on a $200,000 cottage. You have no money for the down payment saved yet, but you want to put 15% down. To get the 15% down payment, or $30,000, you’ll need to hide away $1,250 a month for the next 2 years.

If you don't have $1,250 a month to save, another variable must change. You will have to save for longer, put less money down or buy a cheaper cottage.

4. Choose a lender and apply

When you’re confident you’ve saved up enough to fund your down payment, you can begin the process of choosing a lender and applying for a mortgage.

When buying a cabin or cottage as a second home, it’s especially important that you have your personal finances in order. Take time to understand exactly what your budget is when you begin looking, which will help you make a solid offer that you can back up.

Here’s what you should know about financing a cabin or cottage:

Getting your initial mortgage approval is important

Preapproval from a mortgage lender will make you a more qualified buyer. It’ll also assure the seller of your dream cottage that you can get financed for the amount you’ve offered. In the event that there are competing offers on the cabin, having your initial mortgage approval ready will help you stand out to the seller.

With a Rocket Mortgage^® Verified Approval, you’ll have the confidence and backing of your lender, which could make you a more trustworthy candidate to a seller – and possibly improve the chances your offer on that log cabin in New York or A-frame in Northern California will get accepted.

The qualifications might be stricter

To finance a vacation home, you need a high credit score. You should also expect a higher mortgage interest rate than on your primary home. Second homes are considered a higher risk for lenders and investors because if you have a disruption to your finances, you’ll prioritize making the payments on your principal residence first.

Policies regarding what constitutes a second home or vacation home versus an investment property vary from lender to lender, so make sure you're clear with your lender upfront.

Renting is an option

You can also choose to rent out the vacation home when you’re not in it. Just be aware that your lender may consider it an investment property at that point, which may translate to a higher rate as well. You also have to report the rental income on your taxes if you rent out the property for 15 or more days per year.

5. Find a cabin and make an offer

Once your financing is in line, you can find a property and make an offer. Consider working with a real estate agent, who will be familiar with the market and can help you narrow down your options to properties that meet your needs.

6. Complete the closing process

After your offer is accepted, there are several steps you’ll need to complete before you can close on your cabin. It’s a good idea to get a home inspection so that you have full transparency as to the condition of the property as well as any work that will need to be completed.

Your lender will also require you to get an appraisal to determine the value of your property. This helps to ensure that they’re not lending you more than the cabin is worth. You’ll also need to submit any additional financial documentation as part of the underwriting process. Once that is complete, you’ll be clear to close on your cabin.

What to consider when buying a cottage

There’s a lot to consider when buying a home. While many of the same principles apply to buying a cabin or cottage as they do to other types of houses, a few key differences are worth noting. Here’s what you should have in mind when buying a cottage.

How frequently you’ll visit your cottage

Is your potential getaway someplace you could escape to time and time again? Some people love having a home away from home to spend time with friends and family members. But if the idea of going to the same place year after year sounds boring, maybe cottage ownership isn’t for you, and you may want to consider a timeshare instead.

How much you’ll pay in utilities and other property costs

If you have a cabin or cottage, it may make sense to shut off certain utilities – such as cable and air conditioning – when you’re not there in order to save on expenses. However, you want to be careful with other utilities.

Don’t forget to consider these property costs:

Winterizing

You have to think ahead when winterizing your cottage. If you just shut off the heat, the pipes could freeze and burst. On the other hand, you could shut the water off and avoid that problem altogether if you know you’re not coming back for a while.

Accessibility

Depending on how rural your vacation property is, you need to consider road access. Is your country cottage off a paved road or do you have to take dirt two-track to get there? Will you need a vehicle that can drive through deep snow or will your cottage only be a three-season escape?

Water

Many rural properties are not on a city water system, so the water supply to your rustic cottage may come from a groundwater source such as a well or spring. You may even have your own septic system, which will likely require hiring a septic company to maintain on a schedule determined by how frequently the cottage is used.

Environment

If your property is lakefront, you’ll need to find out if you must pay for lake maintenance. Some areas spray the lake for bugs and clean up the lake bottom. Find out if these preventative measures are an additional charge or if they’re included with your taxes or homeowners association (HOA).

What general maintenance costs you can expect

If you already own a home, you know that maintenance costs money, time and effort. If your cottage is just a recreational property where you can rest your head at the end of the day, you may have less to maintain. But if you intend for your vacation home to be a full-fledged cottage retreat, you’ll likely need to spend time and money to keep it in shape so that it maintains your desired level of comfort.

What insurance costs will be required

The cost of insurance can give you pause when thinking about applying for another line of credit for a second home. A tiny house or cottage in the woods may not require much additional insurance. However, if you’re oceanside or lakeside, your insurance costs will likely increase because you’ll require additional coverage, such as hurricane or flood insurance.

When buying your cottage, consult a real estate agent or REALTOR^® about extra insurance costs you could face.

When is the best time to buy a cottage or cabin?

Buying the right cottage is not like buying a home. Where you may compromise on your primary home because you need a space to live, you can wait longer to find the right vacation home.

Consider these points of view regarding when you should buy your cottage:

• Buy in the fall. Because everyone’s looking for a cottage in the spring or summer, some theorize that purchasing a vacation home in the fall could get a better deal and face less competition. However, waiting until the offseason means you get whatever’s left after the real estate market’s been picked over. You may also have to wait 6 – 8 months to fully enjoy your vacation property.

• Buy in the spring. If you want to use your vacation home immediately after purchase, consider buying earlier in the year. Just know that you’ll face more competition during this time.

• Buy when you're ready. The simplest answer to “When’s the best time to buy a cottage?” may be just when you’re ready. Get your finances together and wait for the right property at the time that’s right for you.

How much does a cottage cost?

The cost of any given cottage or cabin will vary widely depending on factors like its location and size. In terms of second homes overall, Redfin reports that purchases are down more than 50% from pre-pandemic levels due to the higher cost and interest rates, as compared to those for primary residences. The same report notes that the average cost of a primary residence in 2022 was $375,000 while the average vacation home was worth $465,000.  

The location variable

The price of a cottage, like any real estate, depends on the type of cottage, its condition and where it’s located. A basic two-bedroom lakefront cottage on a popular lake may cost the same as a nice four-bedroom cottage in a remote location not close to water.

Cost of ownership

The price tag of the property is the baseline. You’ll have many other costs to consider, and each of these factors can vary from tens of dollars to thousands of dollars monthly depending on the property. Keep these additional costs in mind when looking to buy:

• Taxes

• Insurance

• Utilities

• HOA fees

• Furnishing and stocking

• Upkeep and repairs

• Transportation

What’s the best way to finance a cottage?

Depending on your financial situation, you may have options when financing your cottage.

Cash-out refinance

If you have significant equity in your primary residence, you could do a cash-out refinance. A cash-out refinance rewrites your mortgage, allowing you to take out a new loan while paying equity out to you in a lump sum. This cash-out can help you with a down payment or even give you enough to buy the cottage outright.

Home equity line of credit

A home equity line of credit (HELOC) is another option if you have significant equity. A HELOC allows you to take out a line of credit on your current home for its full property value. This way, you can keep your current mortgage and avoid paying closing costs. Rocket Mortgage doesn’t offer HELOCs currently.

Second mortgage

Your other option is to take out a new mortgage, but know that your lender will require a larger down payment. While you can buy your primary home with as little as 3% down, your vacation home will require at least 10% – or even closer to 20%. You’ll also need to have more assets in reserve, a higher credit score and enough income to cover a second mortgage. In addition, you won’t be able to qualify for a government-backed loan if you’re not buying a property to serve as a primary residence..

Renting vs. buying: The pros and cons of owning a cabin or cottage

Maybe renting a cottage is the better option for you because it offers the flexibility of renting for short periods in a variety of places. But maybe you’d prefer your own cottage that you can change to your liking.

Below are some advantages and disadvantages you’ll need to consider before buying a cottage, cabin or other vacation-style second home.

Pros of buying

The pros of buying a cabin or cottage rather than renting include:

Long-term use

If you want to establish a singular getaway where you can make memories with your friends and family, buying a cottage may be for you. Maybe you see yourself retiring to it one day or having it as a resource for family and friends. Perhaps you also envision an investment property that you rent out when you’re not using it.

More flexibility to make it your own

By buying instead of renting, you can customize and build onto the property as you make it yours over the years. Plus, you’ll likely build equity (although it’s not guaranteed) and you may make a nice profit if you sell your cottage after owning it for several years.

Cons of buying

In terms of cons, buying a cabin or cottage may not make sense because:

There’s a bigger cost involved

The biggest con of purchasing a cottage is the cost. If you already have a mortgage, you’re going to take on even more payments and debt with a cottage. Buying a cottage, mountain cabin or other vacation home is a long-term investment, and upkeep and repairs can cost you time and money.

You’d be locked into the same location

Renting may also be a better option if you don’t want to go to the same place every time you need a vacation. You won’t have a cottage to call your own. But that also means you aren’t liable for repairs, and you can rent somewhere else whenever you want.

The bottom line

Buying a cottage is a significant investment, but it can also be a valuable one. If you see a cottage in your future, start planning today to get your down payment together.

Whether you call it a cottage or cabin, having a place where you, your friends and family members can relax and unwind is the dream for many homeowners. Set your dream in motion and start the home buying process online today.