What to Know About Buying a Second Home

Buying a second home is a big upgrade, whether you’re laying claim to your favorite vacation spot or taking a first step into real estate investment.

But the costs involved with purchasing and maintaining a second home add up fast, and vary considerably depending on how you use the property. Mortgage options will also be based on your plans for using your second home. Here’s how to make sure you’re ready.

Reasons to buy a second home

There are plenty of scenarios in which a second home makes sense:

• You want a vacation home, simply as a regular getaway or as a spot where you’ll eventually retire.
• You need a commuter home, because you or your partner work far enough from your primary home to make a daily drive or train trip untenable.
• You want to invest in real estate by buying a second home that you’ll either rent out or flip.
• You’re looking to upgrade by moving into a new house but keeping your current home as a rental.
• You’re buying a home for a family member, perhaps to keep your parents close by or to give your college student a campus-adjacent pad.

It’s important to be clear about your plans because the way you use your second home affects your financing options and ongoing costs, not to mention the location and type of home.

If you want a commuter home or housing for your college student, buying a condo might make more sense than a detached single-family home. A rental house or a flip will need to appeal to tenants or buyers in order to be a sound investment. A vacation home that doubles as a short-term rental may be difficult to manage on your own if you don’t live near the destination.

Buying a second home includes many of the same steps you’ll remember from purchasing your current home. But the costs associated with a second home go well beyond another monthly payment. The mortgages you can use to buy a second home, and their qualification requirements, are different, too.

Qualify for a second-home mortgage

Whether it’s a vacation home or an investment property, lenders see second homes as riskier. The requirements for minimum credit scores are generally higher, and maximum debt-to-income ratios are lower than for a primary residence.

If you intend to use future rental income to help qualify for the loan — whether it’s from renting the second home or renting your current home after you move into the second home — you’ll face additional hurdles.

Demonstrating income potential from a home that’s already a rental isn’t too hard, so long as the seller is willing to share that information. If the home isn’t currently rented, the lender may want a rental appraisal to show that the property is marketable.

Even if you’re confident you’ll qualify for a second-home mortgage, take the time to comparison shop lenders to make sure you’re getting the best possible deal.