Your Guide to Buying a Second Home

A second home is considered a property that is not the owner’s primary residence. It can be located in the same area as the primary residence, in a different state or even a separate country. While the homebuying process is similar to purchasing a primary residence, there are some key differences to keep in mind. 

Many people purchase a second home as a getaway that they can use for vacations. “They want to buy a property that they’re going to use, maybe just on weekends,” says Carol Zuckert, a real estate agent who represents homes in Greenwich, Connecticut, and Palm Beach, Florida. “They view it as an investment.”

It’s also common for folks buying a second home to use it as a rental property when they aren’t there themselves. For instance, if they have a home on the other side of the country that they only plan to use for one or two months out of the year, they might list it on a short-term rental site to generate rental income for the remaining months. Over the long term, others may view their second home as a future retirement home. 

“They’ll spend more time in their second home as they approach retirement or as their workload shifts,” Zuckert says. “I think a lot of people bought during Covid because of the flexibility of working from home. More people are going back to the office, but it offers a nice flexibility to go to a beautiful environment, at least for a period of time.”

If you’re looking for a second home in a city or state different from your primary residence, you may think that the first place you should seek an agent is in the area where you’re looking to buy. However, Zuckert says that may not always be the best way to start your search. 

“If you have a trusted real estate advisor in your hometown market, ask that person,” she says. This is because they might have access to a network of agents if they’re a part of a large or national brokerage. “If I have a client relocating to California, I have colleagues I can refer them to.”

Purchasing a second home has some minor, but critical, differences from buying a primary residence. For instance, your financing options are more limited. Buyers may not be eligible for certain cost-saving loans or other deals usually offered to first-time homebuyers. 

Financing a second home that’s used as an investment property is also different from one used as a vacation home. 

The general rule of thumb for purchasing a primary residence is that the buyer will need 20% of the cost for a down payment. Many homebuyers, however, may find that they need as little as 3% to 5% down with certain loans or federal and state homebuying programs. 

With a second home, however, you’ll typically need the full 20% down payment. Zuckert says that many of her clients pay cash when buying a second home. If you don’t have 20% for a down payment, and you have some equity in your home, you may be able to tap into a home equity line of credit (HELOC) to fund your purchase.  

A conventional loan is the most common type of mortgage for second homes. Most FHA loans are unavailable for vacation or income-generating properties, although veterans may qualify for a VA loan.

If you plan to finance your second home, it’s wise to speak with a financial advisor or a lender. “You should always speak with a mortgage professional who will let you know what you can afford and what you will be approved for,” Zuckert says. “They will cover the property, insurance and association dues. They’ll try to give you a full picture.” 

You may find that your mortgage rate on your second home is steeper than what you would be offered for a primary residence, even if you have an exceptional credit score. If you plan on using the second home as an investment property and need that extra income to finance the home, mortgage lenders see the purchase as a higher risk. 

For this reason, investment property mortgage rates can be around 50 basis points, or 0.5%, higher than if you were purchasing a primary residence or vacation home. 

If you’re still making mortgage payments on your primary residence, lenders will consider that part of your debt-to-income ratio, which could influence the interest rate they offer. 

“The mortgage companies look at individual total debt,” Zuckert says. “The primary home will play into the additional mortgage you’re getting.” 

You can expect to pay a little extra for insurance on your second home. Because a second home isn’t occupied 12 months a year and is therefore not regularly watched over, it is more likely to experience problems such as frozen pipes and other weather issues. 

Zuckert explains, “Insurance companies want to know it’s occupied 12 months a year, and second homes typically aren’t.”

Being a homeowner is expensive in general. In addition to extra costs incurred through higher interest rates and a full 20% down payment, you’ll also need to consider the hidden costs of homebuying. These include annual taxes, maintenance, repairs and upkeep on a property before going through with such a big purchase. 

Many second homes are in resort-style communities, which have monthly fees and dues. Zuckert also suggests hiring someone local to check on your property. 

Some condo or resort communities will require that you have someone there at least once a month to check on the property if you aren’t there. They may even offer that as a service paid for with your dues. 

According to Zuckert, the most significant aspect to consider is why you are looking to purchase a second home. Are you looking for outdoor recreation close to the beach or ski resorts? Are you looking to be a snowbird and get away from harsh winters? Do you need to be closer to your office, or are you looking to be closer to family members?

After you have the answer to these questions, you can start thinking about where you want to buy. 

Maintenance is one of the main reasons many people choose association or condo communities for their second home. These communities often offer some kind of maintenance as part of their condo or HOA fees. 

You’ll also need to consider the cost and burden of furnishing a home. For many people, a second home is smaller than their primary residence. A vacation property might only have one or two bedrooms, which makes furnishing easier. 

Zuckert says that when you’re looking at vacation homes, it’s common to see more furnished properties for sale in resort areas.  

The process and cost of travel should also be considered. If your second home is just two hours away by car, you may be able to drive there several times a month to enjoy your vacation home. However, if you’re looking to purchase a second home on the other side of the country, you’ll need to realistically consider how often you can use the home. 

A nearby home one state over may be visited more frequently for shorter periods, while a home that requires air travel to visit may be occupied for a month or two at a time. 

Buying a home is one of the most significant financial decisions you’ll make. When buying a second home, you should consider more than just the financial investment. Consider how your lifestyle may change and what a second home will provide that your primary residence can’t. With the proper financial and lifestyle planning, a second home can be a great joy.