Securing Financing for Your Second Home Purchase

Question

How do I finance a second home?

Answer

Buying a second home—whether it’s a vacation retreat, a city pied-à-terre or future retirement spot—differs from financing your primary residence. Lenders view second homes as higher risk, so understanding the key requirements and options helps you prepare a stronger application.

Most lenders treat a second home similarly to a primary mortgage but expect:
• Higher down payment: Typically 10–20% of purchase price
• Solid credit score: Often 700+ for best rates
• Low debt-to-income (DTI): Commonly under 43%
• Proof of residency intent: You must occupy the property for part of the year (e.g., 14 days or 10% of the year)

Interest rates on second-home loans tend to run about 0.25–0.50% above primary-residence rates. Lenders also limit the number of mortgages per borrower; three or four financed properties may require portfolio lending.

Here are common financing paths:

Conventional mortgage: Fixed or adjustable rates, 15- to 30-year terms, highest credit requirements
Home Equity Line of Credit (HELOC): Tap equity in your primary home, variable rate, lower closing costs
Cash-out refinance: Refinance existing mortgage, withdraw equity for down payment
Second mortgage: Home Equity Loan with fixed rate, lump‐sum funds

Tax-wise, mortgage interest on a second home remains deductible under current IRS rules—up to combined debt of $750,000 on both dwellings for married couples filing jointly—but buyers are recommended to verify limits on the IRS website.

To streamline approval:

Gather pay stubs, W-2s and bank statements.
Maintain or improve your credit score by paying balances on time.
Keep existing debts low before applying.
Shop multiple lenders for competitive rate quotes.

Securing a second-home loan takes more documentation and slightly stricter criteria than your first mortgage. Before making a final decision, it’s advisable to consult a licensed mortgage broker or lender who specializes in second homes to explore the best loan structure for your goals.