Buying a Second Home: Essential Steps and Tips

If you’ve already bought a home and are now considering buying a second home to use for vacations or generate income, it’s important to know how the process differs. Taking on the additional debt required to buy a second home requires mortgage lenders to take a bigger risk. A loan to buy a second home may require a larger down payment, may come with a higher interest rate, and may have stricter financial requirements. Read on to learn the essential steps to buying a second home, as well as some tips for how to make the process go as smoothly as possible.

Reasons To Buy a Second Home

If you’re successful enough to have the resources to think about buying a second home, consider yourself fortunate. Here are some of the top reasons for buying a second home, according to Reed Letson, branch manager at Elevation Mortgage in Colorado Springs, Colorado.

Vacation home

Buying a second home to use as a vacation property can be a convenient and potentially profitable way to escape cold weather in winter months or have permanent lodgings near your favorite place to relax. You’ll have the best of both worlds: You can be where you want to be and always have a place to call home.

Rental property

Owning a second property also has the potential to generate income. If you don’t plan to use the home yourself, you can be a landlord and rent out your house long-term to tenants. If you plan to use a second home part-time, you can offer it as a vacation rental when you’re not using it.

Other uses

Other reasons people might want to buy a second home include the need for a commuter home to stay at during the workweek, a home for a child attending college, a comfortable place for an aging parent to stay in, or a place for you to live in retirement.

How To Buy a Second Home in 5 Steps

Here are five steps to take to buy a second home.

1. Make sure you can afford a second home

If you still owe money on your primary home, taking out a loan to buy a second is taking on more debt. Lenders see such loans as riskier and may require more from borrowers to approve a mortgage for a second home. Here are some requirements that may differ when buying a second home.

Down payment

Lenders typically require a larger down payment for a mortgage on a second home, says Jim Duffy, a mortgage broker and branch manager of ALCOVA Mortgage in Charleston, South Carolina. Making a larger down payment is one way to reduce that risk — and maybe get a lower interest rate. “You really want 20% to 25% down on a vacation home,” says Duffy.

Cash reserves

Lenders may require borrowers to have enough cash in reserve to cover three to six months of mortgage payments on a second home. “You need more money in the bank that you’re not going to bring to closing,” Duffy says. “In that sense, (buying a second home) is a little bit more restrictive.”

Homeowners insurance

According to the Insurance Information Institute, if you plan to rent out your second home, you need a landlord or rental dwelling insurance policy. These policies generally cost 25% more than a standard homeowners insurance policy and typically cover physical damage, liability coverage for tenants, and loss of rental income caused by vacancies due to covered damage.

Income taxes

A married couple can deduct mortgage interest on their first $750,000 of home indebtedness, including their primary residence mortgage. If the value of your first home and second home exceeds that, you may be unable to deduct all your mortgage interest. Further restrictions may apply depending on how many days you live in your second property each year. It’s best to consult a tax expert to understand how buying a second home will affect your income tax liability.

Property taxes

You’ll want to research the property tax rates and rules for the area where you are considering buying a second house. Tax rates vary significantly and, in many places, are higher for second homes or rental properties than for primary residences, Duffy says.

Maintenance and repairs

If you plan to rent out your second home, more maintenance may be required to keep its condition appealing for tenants or short-term guests. You also may need to pay for a property manager. For long-term rentals, you can expect to pay between 8% and 12% of the monthly rent for a property manager. “And it’s usually greater than that for short-term rentals,” Duffy says.

Rental income

If you’re buying a home you plan to rent out, you may wonder if the lender will consider the income you expect from renting the home when processing your loan application.

The answer varies. Duffy says it’s rare for lenders to accept estimates of short-term income in their underwriting assessment because it can be unpredictable. “It might rent out the whole month of June and July, and then October through February, it might not rent at all,” he says.

Lenders usually consider long-term rental income estimates as income when underwriting a loan for a second home that will be rented out. If there is a history of the home being rented and you are continuing the lease, lenders also generally accept that.

2. Shop for a mortgage

Regarding loan types, your options are more limited when buying a second home. With few exceptions, government-backed Federal Housing Administration, Veterans Affairs, or U.S. Department of Agriculture loans cannot be used for second homes or investment properties. That leaves you with conventional loans, which come in two types.

Conforming conventional loans

A conforming conventional loan meets a set of federal standards, primarily a maximum loan amount that in 2025 is $806,500 in most of the country and $1,209,570 in high-cost areas. The minimum requirements to get a conforming loan for a second home vary from buying a first home.

• Down payment: Although you may qualify for a loan with less, Duffy says most lenders will want at least a 20% down payment for a second home.
• Credit score: According to Duffy, you’ll need a credit score of at least 620, though many lenders prefer a score of 700 or higher.
• Debt-to-income ratio: When buying a second home, you’ll want this below 45%, says Duffy. Figure out where you stand with our DTI ratio calculator.
• Closing costs: Closing costs typically run from 2% to 5% of the purchase price, depending on many factors, including the property’s location. “And if you don’t put 20% to 25% down, your closing costs are going to be very big,” says Duffy.

Nonconforming conventional loans, aka jumbo loans

If you need to borrow more than the limit on conforming loans for the area you’re buying in, you’ll need a nonconforming conventional loan, also known as a jumbo loan.

• Down payment: A down payment of at least 20% usually is needed, Duffy says.
• Credit score: Generally, you’ll need a credit score of at least 700 or 720.
• DTI ratio: You’ll want a lower DTI ratio. Duffy suggests keeping it below 40% for a jumbo loan.
• Closing costs: Closing costs for a jumbo loan are, of course, going to be higher because you are borrowing more.

You also will want to get mortgage preapproval before you’re ready to shop for a second home. Preapproval is pretty much required when buying a second home, Duffy says. Not only does it show you how much you can afford to borrow, but it also shows buyers you’re ready to buy and can afford the loan.

3. Find a real estate agent

Finding a real estate agent outside your primary neighborhood can be challenging. Aside from online searches, you can ask the broker or lender handling your mortgage preapproval to recommend an agent. “We know pretty much all of them,” Duffy says. “So, we can make a recommendation and make sure you get with a good agent.”

4. Make an offer

Making an offer on a second home is similar to making an offer on a primary residence. However, the seller likely will know that this is a second home or rental property for you. You may want to show you are serious about the purchase by visiting the property in person.

5. Close on your home

The closing process for a second home purchase is similar to that for a primary home purchase, with some exceptions depending on the loan type and whether tenants live in the house. However, expect your closing costs to be higher than those for primary residence loans.

Pros and Cons of Buying a Second Home

Weigh the pros and cons of buying a second home before you commit to buying one.

FAQ: How To Buy a Second Home

Here are answers to common questions about how to buy a second home.

The Bottom Line on How To Buy a Second Home

Buying a second home can be more complicated and expensive than buying a primary residence. It’s important to set clear financial goals for buying a second property and to understand all the costs associated with buying and owning a second home. If doing so fits your budget, you could secure a place to relax and build memories and a solid financial future.