Second home mortgages require a minimum 10% down payment, a credit score of 620 or higher and proof the property will be used for personal enjoyment—not primarily as a rental. Interest rates run 0.25-0.5% higher than primary residence loans. The property must typically be at least 50 miles from your primary home and suitable for year-round use. Misrepresenting an investment property as a second home is mortgage fraud.
Second Home vs Investment Property
Key Differences
| Factor | Second Home | Investment Property |
|---|---|---|
| Primary use | Personal enjoyment | Rental income |
| Rental allowed | Limited | Unlimited |
| Minimum down | 10% | 15-25% |
| Rate premium | +0.25-0.5% | +0.5-0.75% |
| Reserves required | 2-6 months | 6 months |
| Occupancy | Some personal use yearly | None required |
Why It Matters
Second homes get better rates and lower down payments than investment properties. Lenders scrutinize to ensure proper classification.
Investment property disguised as second home = mortgage fraud.
Second Home Requirements
Down Payment
| Loan Type | Minimum Down |
|---|---|
| Conventional | 10% |
| Jumbo | 10-20% |
FHA, VA and USDA don’t finance second homes—they’re for primary residences only.
Credit Score
| Score | Availability |
|---|---|
| 740+ | Best rates |
| 700-739 | Good rates |
| 680-699 | Higher rates |
| 620-679 | Limited options, highest rates |
Debt-to-Income Ratio
Both mortgages count in your DTI:
- Primary home payment
- Second home payment
- All other debts
Maximum DTI: 43-45% typically
Cash Reserves
Typical requirements:
- 2 months for second home
- 2 months for primary home
- Additional reserves if multiple properties
What counts:
- Checking and savings
- Investment accounts (70%)
- Retirement accounts (60-70%)
Location Requirements
Most lenders require:
- At least 50 miles from primary residence (common guideline)
- Reasonable vacation destination
- Year-round accessible
Exceptions exist for properties in resort areas closer to home.
Property Requirements
Must be:
- Suitable for year-round use
- Single-family home, condo or townhouse
- Habitable as primary residence
Cannot be:
- Timeshare
- Hotel-condo
- Property in rental pool
- Non-habitable (fixer requiring major work)
Rental Restrictions
Limited Rental Allowed
Second homes can be rented occasionally, but:
- Personal use must be primary purpose
- You should use it yourself regularly
- Cannot be in a rental management program
- Cannot be your primary income source
IRS Rules
For tax purposes, if you rent more than 14 days per year:
- Rental income is taxable
- You can deduct expenses proportionally
- Complex tax implications
Fewer than 14 rental days: Income is tax-free, no deductions.
Lender Scrutiny
Lenders look for investment property red flags:
- Property in rental program
- No evidence of personal use
- Location doesn’t make sense for vacation
- Fully furnished for rental
- Lease already in place
Interest Rates
Rate Premium
Second homes cost more than primary residences:
| Property Type | Rate Premium |
|---|---|
| Primary residence | Baseline |
| Second home | +0.25-0.5% |
| Investment property | +0.5-0.75% |
Example Comparison
$400,000 loan at different rates:
| Type | Rate | Monthly Payment |
|---|---|---|
| Primary | 6.50% | $2,528 |
| Second home | 6.75% | $2,594 |
| Investment | 7.00% | $2,661 |
Second home costs $66/month more than primary residence.
Factors Affecting Rate
- Credit score
- Down payment size
- Loan-to-value ratio
- Property type
- Loan amount
Qualifying for a Second Home Mortgage
Income Requirements
You must afford both properties:
Example:
- Primary home payment: $2,500
- Second home payment: $1,800
- Other debts: $700
- Total monthly debt: $5,000
- Required income (at 43% DTI): $11,628/month
Using Rental Income
For second homes: Rental income typically doesn’t count toward qualification since personal use is required.
For investment properties: 75% of rental income can offset the payment.
Qualification Tips
Strengthen your application:
- Lower DTI on existing debts
- Larger down payment
- Higher credit score
- More reserves
Consider:
- Paying off car loan first
- Waiting for raise or promotion
- Adding co-borrower with income
Buying Process
Step 1: Get Pre-Approved
Pre-approval for second home should:
- Account for both mortgages
- Show sufficient reserves
- Confirm rate expectations
Step 2: Find the Right Property
Consider:
- Location you’ll actually use
- Distance from primary home
- Rental potential (if desired)
- HOA rules
- Insurance costs (flood, hurricane)
Step 3: Make an Offer
Second home purchases often:
- Have more competition in popular areas
- May be all-cash offers competing
- Require flexibility on timing
Step 4: Complete Due Diligence
Additional considerations:
- Rental restrictions in HOA
- Local short-term rental laws
- Insurance availability and cost
- Property management options
Step 5: Close
Similar to primary residence, but:
- May be remote closing
- Higher closing costs in some vacation areas
- May need local attorney in some states
Costs Beyond the Mortgage
Property Taxes
Vacation areas may have:
- Higher tax rates
- Special assessments
- No homestead exemption (that’s for primary)
Insurance
Higher costs for:
- Coastal properties (wind, flood)
- Vacation areas (fire, natural disasters)
- Vacant periods
Vacant home insurance may be required if unoccupied for extended periods.
Maintenance
- Distance makes maintenance harder
- May need property manager
- Seasonal preparation (winterizing)
- More wear from rental use
HOA Fees
Resort and vacation communities often have:
- Higher HOA fees
- Resort-style amenities
- Rental restrictions
- Special assessments
Utilities
- Maintaining utilities year-round
- Higher costs in extreme climates
- Security systems
Tax Implications
Mortgage Interest Deduction
If primarily personal use:
- Interest is deductible as second home
- Combined limit: $750,000 of mortgage debt (primary + second)
If significant rental use:
- Must allocate between personal and rental
- Rental portion follows investment rules
- Complex calculations
Property Tax Deduction
- Deductible (subject to $10,000 SALT limit)
- Combined with primary home property taxes
- Combined with state income taxes
Rental Income Taxes
Fewer than 15 rental days: Income is tax-free
15+ rental days:
- Income is taxable
- Can deduct proportional expenses
- Depreciation may apply
Consult a tax professional for vacation home tax planning.
Converting Second Home to Investment
When It Makes Sense
- You’re not using it enough
- Want to generate income
- Moving and making current primary the rental
Implications
For existing mortgage:
- Most loans allow conversion
- Notify lender (may be required)
- Insurance must change
For future refinancing:
- Property is now investment
- Higher rates apply
- Different requirements
Tax changes:
- Depreciation begins
- Rental income is taxable
- Different deduction rules
Second Home Alternatives
Fractional Ownership
Own a share of a property:
- Lower cost of entry
- Shared maintenance
- Limited use time
- More complex financing
Vacation Home Clubs
Membership-based access:
- No ownership
- No financing needed
- No equity building
- Recurring fees
Long-Term Rental
Rent a vacation property regularly:
- No down payment or mortgage
- Flexibility to change locations
- No maintenance responsibility
- No equity building
Frequently Asked Questions
Can I use an FHA loan for a second home?
No. FHA loans are only for primary residences. You must use conventional, jumbo or portfolio loans for second homes.
How far must a second home be from my primary residence?
Most lenders prefer 50+ miles, but there’s no strict rule. Properties in resort areas may qualify even if closer. The key is that it makes sense as a vacation destination.
Can I rent out my second home?
Limited rental is allowed, but personal use must be the primary purpose. You cannot buy a second home with plans to rent it full-time—that’s an investment property.
What’s the minimum down payment for a second home?
10% for conventional loans. Jumbo loans may require 10-20%. You cannot get 3% or 3.5% down on a second home.
Are second home rates higher?
Yes, typically 0.25-0.5% higher than primary residence rates. This is lower than investment property premiums but still adds to your costs.
Can I have two mortgages?
Yes. Lenders will qualify you based on your ability to pay both. Both payments count in your DTI calculation.
Michael Chen
Certified Financial Planner, Mortgage Specialist
Our team of mortgage experts provides accurate, up-to-date information to help you make informed decisions about your home financing.
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