How to buy a second home in 2025: A 7-step guide

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Kasey Tross
May 5, 2025
A luxury cabin that serves as a second home in a forest near a pond.
Dreaming of buying a second home? Despite market shifts, it's possible. Whether seeking a mountain escape or a cozy getaway, understanding the intricacies of purchasing a vacation property is crucial. In this guide, we'll discuss the realities of the second home purchasing process and cover some essential insights for prospective buyers.
Let’s explore the seven steps of how to purchase a second home:

1. Determine your budget

Buying a second home is a significant financial commitment, and accounting for all the associated expenses in advance can help ensure you enjoy the home for years to come. Determining your budget for a second home involves assessing your current and future finances. Consider income, expenses and additional costs like taxes and maintenance, especially if you will be assuming a second mortgage. A second home calculator can help you determine if a new home purchase is feasible.
A graphic shares how to know when you’re ready for a second home.
Evaluate financing options and consult a financial advisor for insights into tax implications and investment alignment. This thorough analysis ensures that your second home purchase aligns with your financial goals and lifestyle.

Second home expenses

In addition to the purchase price, be sure to factor in these expenses when budgeting for a second home:
  • Interest: Second mortgage interest rates are typically higher than primary mortgage rates.
  • Property taxes: Monthly mortgage payments include estimated property taxes, which vary by location.
  • Homeowners insurance: Second home insurance premiums are usually higher and depend on occupancy.
  • HOA fees: Homeowners association fees represent an additional monthly cost based on provided amenities.
  • Utilities: Whether you’re using the second home yourself or planning to use it as a short-term rental, you’ll need to budget for monthly expenses.
  • Maintenance: Homeownership necessitates budgeting for routine and unexpected maintenance costs.
  • Property management expenses: If you live far from your second home, you may need to hire a property manager to coordinate regular maintenance and handle tenant issues.
Although second homes come with their fair share of added expenses, they also offer a few tax deductions that make your second house dreams less costly.

Potential second home tax deductions

As you’re crunching the numbers, remember your second home can also be a source of rental income and tax breaks. Depending on how your second home is classified and used, you may be able to:
  • Deduct mortgage interest payments on principal amounts up to $750,000.
  • Earn short-term or long-term rental income, depending on local regulations.
  • Deduct rental-related expenses, including repair costs and depreciation.
These are great ways to make owning a second home more feasible. However, second home tax deductions can be complex, so consult a tax adviser before making big financial decisions. 

2. Consider your financing options

Lenders often see second homes as being at higher risk for loan repayment. For this reason, second home and primary home mortgages differ.Here are some things to consider when financing a second home:
  • You need to pay a larger down payment. You usually need at least 10% of the second home's cost on hand to find a lender.
  • There are higher credit score requirements. According to The Mortgage Reports, the lowest credit score to qualify for a conventional home loan is 620. When shopping for a second home, shooting for a minimum of 640 (but ideally over 700) is a good goal for a second mortgage
  • Be mindful of your debt-to-income (DTI) ratio. Your DTI ratio includes all of your current debts plus the added debt of the second home. So make sure your DTI doesn’t exceed the 43% limit most lenders have for applicants. 
  • Prepare for higher interest rates. Adding an extra 0.5% to a normal mortgage may seem small, but it adds up over a 30-year period. 
It’s important to note that classifying your second home as an investment property indicates it has the potential to generate income, and a lender may factor that potential income into their lending decision, but not always. 

Becoming a co-owner

Buying a second home doesn’t have to be a solo endeavor. Joint ownership can increase your buying power and reduce a second home's maintenance and management burden. You can invite one or more friends or family members to share ownership with you and use a lawyer to draw up an agreement.
Second home buyer tip: If you choose a co-ownership LLC through Pacaso, you can apply for second home financing offered by one of our banking partners. Pacaso serves as a corporate guarantor of the loan, vetting qualified buyers and protecting you if a co-owner defaults.

3. Compare lenders

When comparing lenders for a second home, it's essential to conduct a thorough evaluation to secure the best financing option tailored to your specific needs. Consider the following factors and use them as a basis for comparison:
  • Loan terms: Examine the loan terms, including the duration of the loan and any associated fees. Longer loan terms may result in lower monthly payments but can lead to higher overall interest costs.
  • Loan-to-value ratio: Assess the loan-to-value (LTV) ratio, which is the loan amount compared to the appraised value of the property. A lower LTV ratio may result in better loan terms.
  • Closing costs: Compare the closing costs associated with each lender. These costs can vary, and understanding them helps avoid unexpected financial burdens at closing.
  • Prepayment penalties: Check for prepayment penalties, as some lenders impose fees for paying off the loan early. Opting for a lender without such penalties provides flexibility if you decide to refinance or pay off the loan ahead of schedule.
By comparing these factors among different lenders, you can make an informed decision that aligns with your financial goals and secures the most favorable mortgage terms.
Second home buyer tip: Don’t get pressured to go with a certain lender on the spot. Make sure you’ve evaluated different options and give yourself time to consider the pros and cons of each one.

4. Get pre-approved

Getting pre-approved for a second home is a simple process, with many lenders allowing you to apply online. They look at your financial history, including your current income and debts, to give a rough number regarding what you can afford. At this stage, consult multiple lenders to find the best interest rates available.  Having a pre-approval letter from a lender can give you a leg up when it’s time to make an offer on your dream second home. Be aware, however, that since some lenders may see financing a second home as a higher risk, the loan they approve you for may be lower than you’re expecting.

5. Find a location and a local agent

Once you decide how to use your second home, you can hone in on the perfect location. Going with your favorite vacation spot is tempting, but consider other important factors before you start house hunting.  Ask yourself:
  • How often will you be there? If your second home will be a frequent weekend getaway, you’ll want something within driving distance of your primary residence. If you plan to use it for longer stays a few times a year, then something farther away could work well. 
  • Can I afford to live far away? The farther away your second home is, the more challenging it will be to manage, so you might need to rely on a property manager. Distant locations will also require higher travel costs, and locations prone to natural disasters — like beachfront property vulnerable to hurricanes — will cost more to insure. 
  • Do I want a home in a high-traffic area? Places with warm winter weather like Palm Springs or year-round adventures like Lake Tahoe are likely to stay rented and sell more quickly than one in a more remote location — but they also cost more.
Confirming your reason for owning a second home can help you decide on the perfect destination for your new vacation spot.

Choosing the right agent

Finding a knowledgeable agent in your target market can significantly decrease your workload in your second home search. You can use their local knowledge to help you with logistics and make an informed decision. Research local agents online, cross-reference reviews and ask for recommendations from your friends and family when possible. According to Redfin, the going rate of a real estate agent is about 5% of the home’s sale price. Commissions are negotiable, so if you find a real estate agent with a higher-than-average rate, you may be able to talk them down.

6. Make an offer

Purchasing a second house will be a familiar process if you’re already a homeowner: You make an offer, negotiate, come to an agreement and prepare for closing. Prior to closing, you will:
  • Have a professional home inspector walk through the house. They’ll look for any issues that the previous owner didn’t disclose so you can make an informed decision about your purchase. If the inspection reveals anything major, you can negotiate with the seller or walk away. 
  • Have a professional home appraisal conducted. Your lender will arrange for an appraisal, which determines the home's real value and compares it to the listing price. If the appraisal is equal to or higher than the listing, you can proceed with the sale. If the appraisal comes in lower, try negotiating for a price closer to the appraised value.   
  • Purchase homeowners insurance. You’ll need proof of insurance before you can close on the second house. Compare rates from different insurance providers to find the best rate. Remember to account for local risks, like flooding or fires, that you may need to add to your coverage. 
  • Conduct a final walkthrough. Even though you’ve (likely) already toured the home, you’ll want to ensure it’s move-in ready. The final walkthrough is your fail-safe for avoiding buyer’s remorse. 
Once your offer is accepted, it’s time to begin the closing process for your new home.

7. Begin closing

After the seller accepts your offer, the second home closing process begins. This process involves several crucial steps:
  • Select a real estate attorney or closing agent: Depending on the state in which you are closing, the services of a real estate attorney may be necessary to handle settlement and closing paperwork.
  • Bring proof of homeowners insurance: Secure homeowners insurance and provide proof at closing for your lender to release funds. 
  • Acquire title insurance: Your lender will collaborate with a title company to investigate any existing issues with the property for a transparent buying process. The title company will also issue insurance to protect your new home purchase.
  • Schedule another home inspection: Conduct a comprehensive home inspection to thoroughly examine the property one more time. If issues arise, work with your agent to negotiate with the seller on pricing or repairs.
  • Await appraisal results: Although you can conduct the appraisal before the inspection, the latter helps identify major issues early on. Your lender can arrange for a home appraisal to verify the accuracy of your home's value.
  • Arrange a final walk-through: Schedule a final walkthrough to ensure the home is in optimal condition for the purchase.
  • Close on your second home: Cover any remaining closing costs, sign all necessary paperwork and receive your keys!
Although closing on your second home may appear overwhelming, a smooth closing is key to turning your house purchase into a dreamy second home getaway. 
A graphic shares the seven phases of buying a second home.

How to determine if you’re ready for a second home

When considering purchasing a second home, you'll want to evaluate your finances, lifestyle, and market conditions to determine whether it's the right time to purchase—but those factors are just the tip of the iceberg. Here are some of our team's top considerations for those considering a second place of residence. 

Down payments, interest rates and debt

Assess your current financial situation to see if you can comfortably afford a second home down payment and the potential higher interest rates that come with second mortgages. Ensure that this added debt won't negatively impact your primary financial responsibilities, such as your emergency fund and retirement savings.If additional debt strains your financial resources, it may not be quite the right time to buy. Taking on a second mortgage without the capacity to do so could lead to financial instability and long-term financial hardship, making it hard to relax and enjoy that vacation home you worked so hard to acquire.

Lifestyle fit

The ideal second home aligns seamlessly with your lifestyle. Prioritize locations that support your hobbies and desired activities, guaranteeing a frequent and enjoyable retreat. If you like to ski, for example, a mountain retreat might be a wise choice rather than a beachfront getaway. Choose the location you will want to visit most often!

Investment or personal escape?

When deciding on the main goal for your second home, it's crucial to determine if you're primarily interested in generating rental income, building long-term investment appreciation, or creating a personal retreat. Each of these objectives will significantly affect your approach to buying, managing, financing, and handling taxes for the property.
  • Rental income: If your primary goal is to generate rental income, you'll need to consider factors such as the location's popularity for rentals, the potential rental income based on comparable properties and the associated costs of managing the property, including maintenance, repairs and property management fees. You'll also need to factor in the seasonality of the rental market and potential vacancy periods.
  • Long-term investment appreciation: If your focus is on long-term investment appreciation, you'll want to prioritize factors such as the location's potential for property value growth, the overall real estate market trends in the area and the potential for future development or infrastructure improvements that could boost property values. 
  • Personal sanctuary: If your main goal is a vacation home, your priorities will likely be centered around factors such as the location's amenities, proximity to attractions and activities you enjoy and the overall ambiance and relaxing feel of the property. While rental income and appreciation may still be considerations, they will likely be secondary to your enjoyment and use of the property.

Time investment

Owning a second home comes with significant responsibilities. Are you prepared to manage the upkeep of two properties? This includes regular maintenance, potential repairs and the time and financial commitment of traveling between both homes. If not, are you willing and able to hire a property management company or other professionals to handle these tasks? Remember that delegating these responsibilities will add to the overall cost of owning a second home.

Market timing

Finally, when looking to take a big step forward in your second home journey, you'll want to look at the home market conditions. Many properties are available in a buyer's market, and buyers have more negotiating power. In a seller's market, high demand and low inventory give sellers the upper hand. Understanding the current market conditions will help you set realistic expectations, develop an effective negotiation strategy and help you determine if now is the right time to buy.  

Take your first steps toward a second home

Now that you know how to buy a second home, it’s time to find the second house of your dreams. If turn-key luxury is what you’re after, consider buying a second home with Pacaso. Each of our co-owned homes is part of an LLC, is fully decorated and furnished, and comes equipped with a dedicated property manager to make your second home ownership journey as stress-free as possible. We even offer financing with trusted lenders—so there's nothing to hold you back. Check out our available luxury homes today! 

How to buy a second home FAQ

01: What do I need to buy a second home?

To buy a second home, you’ll need to secure financing (unless you plan on paying in cash) and a real estate agent to help you navigate the home buying process. Alternatively, you can buy a second home through Pacaso and take advantage of our financing partners.

02: What is considered a second home for tax purposes?

For tax purposes, a second home is a property you own but don't use as your primary residence and typically functions as a vacation home.

03: How can I buy a second home online?

To buy a second home online, research real estate listings on reputable house buying websites. Use virtual tours and video calls to assess potential homes. You can also work with a local real estate agent who can facilitate the second home buying process remotely.

04: Can I buy a second home without a mortgage loan?

Yes, you can purchase a second home in cash without a mortgage loan. You can also use a home equity loan or a home equity line of credit (HELOC) to purchase a second home.

05: Is now a good time to buy a second home?

The right time to buy a second home depends on your financial situation and ability to finance and manage the responsibilities of owning a second home.

06: What’s the difference between a second home vs. an investment property?

A second home is for your personal enjoyment. As a vacation home, you must occupy it for a portion of the year. An investment property, however, is purely for financial gain. You buy it to rent out or for its value to increase, with minimal personal use. Lenders and tax rules treat them very differently.

07: Can I use a FHA loan to finance a second home?

No, generally not. FHA loans are designed to help people buy their primary residence. The FHA's mission is to support homeownership for those who will live in the property as their main home. This doesn't apply if the property—as a second home—is not your primary residence.

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