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Should I buy a second home?

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The housing market has been incredibly hot throughout the pandemic, but homebuyers haven’t only been looking for primary residences. Fifteen percent of newly-built homes sold are actually homes intended to serve as a second property, either an investment or vacation home, according to the National Association of Home Builders. Is owning a second home right for you? Read on. 

What to consider when buying a second home

Owning a second property sounds like a dream, but it’s not always all upside. First, you’ll need to determine how you’ll use the property, what it’ll mean for your budget and whether you’re up for the work of maintaining another home. Ask yourself:

Can you fit another home in your budget?

Whether it’s your first or second, buying a new home has never been more expensive. Consider your finances and whether a second home could stretch you too thin. Think beyond the down payment and monthly mortgage payments (if you’re getting one). At the very least, factor in the costs of insurance, maintenance and taxes, and other expenses related to being a landlord if you plan to rent the property. Even when you’re not there, the costs can add up: If it’s a vacation home, how far away is it from your primary residence? If you’re planning to go there regularly, consider the cost of getting to the property.

Does it need to be a single-family home? 

If the upkeep of a second home sounds overwhelming, what about a condo? You’ll pay homeowners association (HOA) dues, but that can help eliminate the hassle of hiring pros to do the work while you’re gone. Plus, buying a new condo is generally more affordable than a single-family home. National Association of Realtors data from December 2021 shows that the median national condo price was $305,100 — close to $60,000 cheaper than the median national price of a single-family home.

How much time will you actually spend there?

Think about your lifestyle. Has your employer given you the freedom to work remotely indefinitely? If so, you might be able to spend more time at a second home and turn life into one long vacation. If you have regular commitments or your children have activities where your primary residence is located, however, getting away might pose a logistical headache. Be realistic about how much time you’ll use a second home. 

Do you want your second home to be another stream of income? 

If you’re thinking about buying a second home to earn rental income, first make sure your rental approach is permissible in your location and the HOA (if your second home is part of one). In addition, some municipalities and associations have restrictions regarding short-term rentals. Beyond that, have an idea of how much you can charge per night or per month to help gauge whether a second home is a wise investment as a rental property. 

What are the tax implications? 

Depending on how you purpose the second home, your tax bill will change. If you’re earning rental income, you’ll need to report it, but you might also be able to deduct some expenses. There are many nuances when it comes to owning a second home and filing your taxes — for example, if you rent it out for less than 14 days in a calendar year, you won’t need to report any of the income — so ask a tax professional to run the numbers before you buy.

What’s the outlook for the real estate market?

A second home might not be a forever home, so as you consider buying one, think about what the conditions might be like whenever you decide to sell it. 

How to buy a second home

If, after careful consideration, the answer to “Should I buy a second home?” is yes, here are the steps to take in the process: 

  1. Save up for a bigger down payment – Buying a second home has some similarities to buying your first home, but there’s at least one big difference: You’ll likely need a larger down payment. Second homes present a bigger risk for mortgage lenders, so they’ll want to see you make a larger commitment upfront. That bigger down payment also benefits you. You’ll finance a smaller amount of money, which will help you save in the long run.
  2. Get your credit in pristine condition – A mortgage lender will look at your debt, current cash reserves, and your holistic financial picture. So, before you apply for a mortgage for a second home, focus on paying down other loans and boosting your credit score.
  3. Time your purchase – Each month is not created equal in the real estate market. Study local pricing and supply trends to understand when demand has been historically lower — you’ll be more likely to land a good deal on a second home if you aren’t competing against multiple buyers.
  4. Get preapproved – When you’re ready to move fast on a second home, get preapproved for your new mortgage. A preapproval might only last for a certain period of time — 45 days, for example — so do this when you’re close to searching for a second home.
  5. Find the right real estate agent – While you’ll do your own research on the market, it’s also wise to find a local expert who has a finger on the pulse of what’s happening — and potentially knows before a new home is even listed. Since you might not live near the location of your second home, you’ll want a trusted real estate agent who understands what you’re looking for and can act on your behalf in your absence.
Written by
David McMillin
Contributing writer
David McMillin is a contributing writer for Bankrate and covers topics like credit cards, mortgages, banking, taxes and travel. David's goal is to help readers figure out how to save more and stress less.
Edited by
Mortgage editor