• Second homes can serve as vacation homes, investment properties, housing for aging parents or adult children, or seasonal living spaces. 
  • There are multiple options for financing a second home, including conventional loans, jumbo loans, home equity loans, home equity lines of credit (HELOCs), and cash-out refinancing. 
  • Mortgage requirements are different for second homes than for primary residences. You may need higher credit scores, higher down payments, lower debt-to-income (DTI) ratios, or greater cash reserves to qualify for financing on a second home.

Are you considering buying a second home? Whether you’re looking for a family vacation hub, an income-generating investment property, or a place you can eventually retire to, second homes can provide personal and financial benefits. 

While the process of buying a second home closely mirrors the process of buying your primary residence, there are some key differences, notably in the way second homes are financed. 

In this guide, we’ll explain how second home purchases work so you can determine if this is the right move for you.

Buying a Second Home: Key Considerations

There are many reasons to buy a second home, including:

  • For vacations. A vacation home provides a retreat and can serve as a hub for family and friends to meet regularly.
  • As an investment. Renting out a second home could generate passive rental income.
  • For a comfortable retirement. Rather than waiting until retirement to purchase a space that serves your new lifestyle, you could plan ahead, purchasing your retirement home at today’s prices and renting out the property while it waits for you. 
  • For generational housing assistance. A second home could provide housing for aging parents or children coming into adulthood.
  • To have a place closer to work. Rather than relocating your household for work, you may prefer to buy a home near the office so you can stay there during the workweek and come home on weekends.
  • For seasonal living. You might enjoy one part of the country during the summer and another during the winter. 
  • For hobbies. A weekend house could offer experiences your primary residence doesn’t. For example, if you live in the city for work, a countryside retreat could give you a chance to reconnect with nature.

You might even purchase a home to serve multiple purposes. For example, a condo near the beach could serve as your vacation home and generate income as a short-term rental when you’re away. That same condo could then become your full-time residence during retirement. 

Benefits of Owning a Second Home

Second homes offer a range of benefits, depending on their use. In general, owning a second home may provide:

  • Long-term appreciation. While property values rise and fall periodically, they tend to increase over the long term. 
  • Rental income potential. Even if you use the second home, you may be able to rent it out on a short-term basis when it’s not in use. 
  • Possible tax advantages. You may be able to deduct mortgage interest, property taxes, and expenses from their taxable income to reduce your tax burden.[1]
  • A hedge against inflation. Home values and rental rates usually increase with inflation.
  • Investment diversification. Real estate investments may be less volatile than other investment vehicles.
  • A better quality of life. A second home may provide the space to improve your life in ways that are not possible in your primary residence.
  • A home for friends, family, and future generations. A second home can provide housing for those you love, including possible grandchildren and great-grandchildren to come.

Assessing Financial Readiness for Buying a Second Home

Buying a second home requires an upfront investment and comes with ongoing costs. Before pursuing a second home, it’s important that you understand the costs associated with buying a second home and are financially able to handle them. 

Upfront Costs

When budgeting to buy a second home, prepare for upfront costs, including:

Ongoing Costs

The ongoing cost of second home ownership includes:

  • The mortgage payment (including the loan principal, interest, property taxes, and insurance premiums).
  • Private mortgage insurance (PMI), if your down payment is less than 20% on most loan types.
  • Utilities.
  • Maintenance.
  • Any homeowner’s association (HOA) fees.
  • Property management costs, if the residence is a rental and you hire someone to maintain it.

How To Finance a Second Home

There are fewer mortgage options for second homes than for primary residences because government-backed loans (FHA loans, VA loans, and USDA loans) can generally not be used to purchase second homes.[2][3][4]

Having said that, there are still multiple options for financing a second home.

Option 1: Conventional Loans

A highly versatile mortgage option, conventional loans are widely available and suitable for many second-home buyers.  

Option 2: Jumbo Loans

If you need to borrow more than conventional loans allow, consider a jumbo loan, which offers higher loan limits for well-qualified buyers. 

Option 3: Home Equity Loans and HELOCs

Home equity loans and HELOCs are second mortgages that allow you to convert some of the equity in your primary residence into cash that can be used to purchase a second home. Learn more about how home equity loans and HELOCs work.

Option 4: Cash-Out Refinancing

Like home equity loans and HELOCs, cash-out refinancing allows you to convert home equity into cash, which can be put toward the purchase of a second home. Unlike home equity loans and HELOCs, a cash-out refi completely restructures your primary mortgage, changing the interest rate and loan terms. This option may be suitable if you can secure a lower interest rate by refinancing. However, if you have a current mortgage with a low rate, you may not want to refinance that mortgage. 

Second Home Mortgage Requirements

Mortgage requirements for financing a second home vary depending on factors like the use of the property (private use or rental), the loan type used, and lender policies. In general, qualification criteria are stricter for second homes than for primary residences.

Here are some general guidelines for qualifying for a mortgage for a second home. 

  • Down payment. While conventional loans offer down payments as low as 3% for primary residences, you may need to put down 10-40% to purchase a second home. If you can put down 20% or more, you can avoid PMI and perhaps earn a more favorable interest rate.
  • Credit score. Lenders may require higher credit scores for second homes. Higher scores may be rewarded with lower interest rates. 
  • Debt-to-income ratio (DTI). To make sure you can manage the new mortgage on top of your existing debts, lenders calculate your DTI by dividing your total monthly debts (including the new loan) by your monthly income. A lower DTI generally indicates less risk.   
  • Cash reserves. Lenders may want to see savings equal to several months of mortgage payments to serve as a financial cushion when you take on a second home. 

How To Buy a Second Home Step by Step

The process for buying a second home is very similar to the standard homebuying process. However, there are a few differences to be aware of.

Here are the steps to buying a second home, focusing on how the process differs from buying a primary residence.

Step 1: Getting Pre-Approved for Your Mortgage

Mortgage pre-approval is always important because it informs your homebuying budget and strengthens your eventual purchase offer by assuring the sellers of your ability to qualify for a home loan. However, this step is even more important for second homes because of the stricter mortgage requirements.

Step 2: Researching Locations and Touring Properties

As you research neighborhoods and consider individual properties, keep your purpose for the home in mind. If you plan to rent out the unit at any point, for example, pay attention to regulations on private home rentals. A local real estate agent can provide valuable insights into the market.

Step 3: Making an Offer

Draft your offer with your objective and budget in mind. Remember: the listing price is not necessarily indicative of the fair market value of the property, so you (and your real estate agent) should review recent sales of similar homes to determine a fair price.

Step 4: Completing Due Diligence and Closing the Deal

Once the property is under contract, you can hire a home inspector to assess the physical condition of the property, a home appraiser to determine its value, and a title researcher to confirm that the chain of title is clear. This is also the time to finalize your mortgage application and work with your lender to get the loan funded so you can close the deal on your second home. 

Step 5: Managing and Maintaining Your Second Home

Whether you manage the second home yourself or hire a professional property manager to oversee day-to-day operations, pay close attention to the new property. Establish a regular maintenance schedule to keep the property in good condition and maintain its value.  

The Bottom Line: Should You Buy a Second Home?

Buying a second home is a personal decision that requires a careful analysis of your goals and financials. If you can qualify for any necessary financing, can comfortably afford the total costs of ownership, and are confident that a second home will improve your quality of life, then it’s worth exploring further.