Have you ever considered buying a second home?

Purchasing a second home is an investment that can be used for additional income or personal use and fulfillment. It’s also more attainable than many people believe.

In this complete guide, we’ll analyze all aspects of the second home-buying process, including your financing options and strategies for managing your new property.

Buying a second home: What are your goals?

Before you purchase your second home, you have to decide how you intend to use it.

The most common uses for a second home include:

• Vacation
• Retreat
• Hobby hub
• Seasonal living
• Future retirement
• Short-term or long-term rental property
• A mix of personal use and rental income

The purpose of your second home determines your location, budget and property features. 

For example, a buyer interested in purchasing an investment property may target locations with high rental demand and properties with multiple bedrooms.

Financing options for your second home

Your property goals also determine the type of financing you will use to purchase the property if you don’t have the cash to buy it outright.

Let’s look at potential mortgage options for second homes based on your intended use.

Conventional loan

Conventional loans are a flexible option for buyers to purchase a second home for personal use or investment purposes.

However, if the home is classified as a second home rather than an investment property, there typically is a limit to how many days the owner can use it as a rental.

Be transparent about your intentions for the property so your lender can provide the most accurate loan solutions.

Home equity loan or home equity line of credit

If you have enough equity in your primary residence, you may be able to use it to purchase a second home or investment property using a home equity loan (HEL) or home equity line of credit (HELOC).

Investment property loan

Finally, buyers can use investment loans to finance their second home purchase.

This type of loan is specifically structured for income-generating properties or fix-and-flip projects as opposed to owner-occupied properties.

Evaluating your financial readiness

Are you prepared to take on the costs of a second home?

Beyond your mortgage, keep these additional, ongoing costs in mind:

• Property taxes
• Insurance
• Maintenance and repairs
• Homeowners association fees
• Utilities
• Travel costs

An experienced mortgage lender like Compass Mortgage can help you evaluate your financial readiness.

The lender will take a look at the following indicators on your application:

• Your current debt obligations
• Savings and emergency savings
• Credit score

As was the case with your primary mortgage, you must make a considerable down payment on your second home and pay closing costs and fees.

Carefully consider the strain an additional mortgage payment will put on your current debt load and how it will impact your cash flow and savings.

How to choose the right location

The success of any property depends on the location, but it’s particularly important for investment property. 

Here are some strategies for evaluating the location of your second home:

• Travel distance and amenities: Consider the proximity of the property to your primary residence and the property’s proximity to grocery stores, restaurants, entertainment and nature.
• Market trends and local property values: Research average home prices, buyer demand and signs of development like new businesses or population increases.
• Potential for appreciation: Carefully evaluate the area for its job growth, school systems, recreational activities and future infrastructure projects.
• Desirability: Do tourists flock to the area? Is it rich in natural beauty? Consider the area’s popularity and ongoing appeal when markets fluctuate.
• Climate risks: Is the area prone to natural disasters such as hurricanes, flooding or wildfires? Weigh the impact on your property as well as the insurance costs.
• Exit strategy: Depending on all factors mentioned above, are properties in the area generally easy to sell? Will you be able to earn a profit?

Spend time visiting potential areas, speaking with local residents and working closely with real estate professionals to gain insights into the area’s demand and attractivity over time.

Navigating the buying process with ease

The right team of professionals can make the homebuying process much easier.

Consider working with the following professionals:

• A highly recommended local real estate agent
• Mortgage lender experienced in second homes and investment properties (think Compass Mortgage!)
• Real estate attorney
• Financial advisor

A local real estate agent’s role is to match you with the right properties based on your needs and goals.

They will also help you structure unbeatable offers and negotiate price and closing costs with sellers.

Compass Mortgage’s distinctive Get Committed® program helps your agent put you in the best possible position to win the home you want, thanks to a fully vetted loan commitment.

Inspections and legal considerations

Inspections are especially important for second homes and investment properties because they often are in areas prone to specific risks such as flooding or snow damage.

Hire a licensed home inspector to thoroughly examine the property and look for seasonal wear and tear.

If you intend to rent the property, a local real estate attorney can help you understand the zoning and usage restrictions, such as rules for short-term rental properties.

Strategies for managing your second home

Consider hiring a property management company for maintenance and tenant needs, especially if you plan to rent out the home or live far away. 

If you plan to take care of the property yourself, here are some tips you can use to make sure your second home remains safe and secure:

• Schedule routine maintenance: Plan regular inspections for your HVAC systems, plumbing and roofing, and consider hiring local professionals for landscaping or snow removal services.
• Monitor the property remotely: Install smart home devices such as security cameras, thermostats and water leak detectors to monitor the property and quickly address unforeseen circumstances or crises.
• Prepare for seasonal use: If your property is only used seasonally, winterize it for cold months or ensure proper ventilation and pest control for warm months.
• Build a local support system: Call a trusted neighbor or local caretaker to check on the property periodically or respond to emergencies when you’re unavailable.

Make sure your home is protected with the proper insurance or specialized coverage.

Partner with Compass Mortgage

Compass Mortgage can help you purchase your second home with ease.

Apply now to lock in your rate and secure a loan commitment that has the power to put you ahead of other offers—and get you to closing day quickly.

Discover the Compass Mortgage difference today!