Tranquil lake with cottages along the shore.

How To Buy A Cottage In 2020: A Step-By-Step Guide

Andrew Dehan8-minute read

December 24, 2020


Occasionally you need to go somewhere to get away from the noise and enjoy nature. Wherever that little slice of heaven is for you, you may find yourself dreaming of it. It may be time to buy the little cottage you’ve had your eye on.

If paradise is a cottage-style house away, here are some things you should think about while you’re getting ready to buy.

What To Consider When Buying A Cottage

There's a lot to consider when buying real estate. While many of the same principles apply to buying a cottage as they do a home, there a few key differences. Here's what you should have in mind when buying a cottage.

Location, Location, Location

In Toronto, Canada, they refer to it as "cottage country." Anywhere else, it's that getaway spot outside the city. Where you are often determines where you travel to get away. Location touches on nearly everything you need to think about in the selection of your vacation home.

You should visit locations in the area you would like to get your cottage house, in order to find one that’s perfect for you. If you plan to be there for multiple seasons, visit at various times of the year to determine if this is the right place for you.

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

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?

Is it 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. 

If the idea of going to the same place year after year sounds boring, maybe cottage ownership isn't for you and you should check into a timeshare

Your Plans For The Space

Once you’ve decided a second home will be your personal retreat spot, it’s important to determine what you need from the actual house.

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 and a water closet. The more you plan for ahead of time, the easier finding the appropriate place.

Think of ways to make the space adaptable to fit more people. Bunkbeds and futons are functional accommodations. Maybe the interior is small, but has 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.

Line Up Your Financing

It’s important when you’re going through this process that you have your personal finances in order. This way, you’ll know exactly what your budget is and can make a solid offer that you can back up.

Preapproval from a lender will make you look like a serious buyer and that much more attractive to the seller of that dream cottage you have your eye on.

To finance a second, vacation home, you need a high credit score, and may have a higher mortgage interest rate than on your primary home. This is to account for the higher risk lenders and investors are taking. If something goes wrong, you’re going to make the payments on your principal residence first. 

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 will 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. It’s just something to keep in mind.

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.

Utilities And Other Property Costs

If you have a cottage, it may make sense to shut off certain utilities when you’re not there to save on expenses. This works with things like cable and air conditioning, but you want to be careful with other utilities.

You have to think ahead to have your cottage winterized. If you just shut off the heat, the pipes could freeze and burst, putting your place in a world of trouble. 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. It’s all about planning.

Depending on how rural your vacation property is, you need to consider road access. Is it off a paved road or do you have to take dirt two-track to get there? If you're going there after significant snowfall, do you have a vehicle that can drive through deep snow?

For rural properties, you may not be on a city water system. You may have your own septic system that needs to be maintained. This usually involves hiring a septic company to maintain it on a schedule that makes sense for the amount of use it gets.

If your property is lakefront, find out if you must pay for lake maintenance. Some areas spray the lake for bugs and clean up the lake bottom. Someone has to pay for this. Find out if this is included with your taxes or homeowner's association (HOA) fees, or if it's an extra charge.

General Maintenance Costs

If you own a second home, you already know that maintenance costs money, time and effort. If it's just a recreational property to rest your head at the end of the day, there may be less to maintain. But if it's a full-fledged cottage retreat, you’ll have to spend time and money to keep it in shape. 

Insurance Costs

The cost of insurance can give you pause when thinking about applying for another line of credit for a second home. If it's small cottage in the woods, you may not have an issue. However, if you're lakeside or oceanside, your insurance costs will go up. Extra flood insurance may be necessary depending on the area. 

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

Get approved to buy a home.

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When Is The Best Time To Buy A Cottage?

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

Some theorize that buying while leading into the fall could get you a better deal. Everyone is looking for a cottage in the spring/summer, so purchasing in the fall may mean you have less competition. 

However, it means you get whatever is left after everything has been picked over. Buying a cottage in the fall also means that you may have to wait 6 – 8 months to fully enjoy your property. Are you willing to pay for a property without being able to use it right away?

The simplest answer to "when is the best time to buy a cottage?" may be the right one: 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 price of a cottage, like any real estate, depends on the cottage 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. 

You could go sub-$100K for a rustic getaway in beautiful and remote Glennie, Michigan, or swing the opposite way for an upscale oceanside property in Southampton, New York. You'll likely fall somewhere in between. 

Americans spent an average of $200,000 when buying a vacation home in 2016. This is an upward trend from years prior. Maybe all you want is a place to rest, or maybe you want something with all the amenities. How much you spend depends on your finances and your preferences. 

What’s The Best Way To Finance A Cottage?

Depending on your financial situation, you may have options when financing your cottage. If you have significant equity in your primary residence, you could do a cash-out refinance. A cash-out rewrites your mortgage, taking out a new loan and paying equity out to you in a lump sum. This can give you a down payment or enough to buy the cottage outright.

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 the full value of it. This way, you can keep your mortgage and avoid paying closing costs.

Your other option is to take out a second mortgage. Know that your lender will require a larger down payment. Where you could buy your primary home with 3% down, your vacation home will require at least 10%, if not 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.

Cost Of Ownership

The price tag of the property is the baseline. There are many other costs to consider. Taxes, insurance, utilities and HOA fees add up. Each of these factors can vary from tens of dollars to thousands of dollars monthly depending on the property. 

You’ll have to furnish and stock your cottage to make it livable. Upkeep and repairs will be your responsibility, too. Add to that the cost of transportation to and from the cottage. Keep these factors in mind when looking to buy.

Building A Plan For Down Payment

If you don't have the option to cash-out refinance or pull a HELOC, you'll need a plan to save your down payment. 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, say you want to buy your cottage in 2 years. You have no money for the down payment saved yet, but you want to put 15% down. You think you could afford monthly payments on a $200,000 cottage. For you to get the 15% down payment, you will 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.

Renting Vs. Buying A Cottage

Maybe renting a cottage is the better option for you. It offers flexibility, as you can rent for short periods in a variety of places. But maybe you would prefer your own cottage that you can change to your liking. There are pros and cons of buying a cottage.

Pros Of Buying

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. You can customize and build onto the property as you make it yours over the years. 

Maybe you see yourself retiring to it one day or having it as a resource for family and friends. It could also be an investment property that you rent out when you're not using it.

Cons Of Buying

The biggest con of buying a cottage is the cost. If you already have a mortgage, you're going to take on more payments and more debt with a cottage. Upkeep and repairs can cost you time and money. It's a long-term investment that can tie up your money. 

If you don't want to go to the same place every time you need a vacation, renting may be a better option. It may not be your cottage, but you only have to pay to stay there, you aren't liable for repairs and you can rent somewhere else whenever you want.

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

A place where you and your friends and family members can relax and unwind is a part of many people's dreams. Set your dream in motion today.

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Andrew Dehan

Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.