Buying a second home: Requirements, costs and steps

Written by Samantha SheltonNMLS 1647301Updated October 2026

Couple on the deck of a northern Michigan lake cottage at dusk, enjoying the reward of buying a second home

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation.

Buying a second home means qualifying for a new mortgage while still carrying your primary residence, so lenders hold you to stricter standards. Conventional financing caps a one-unit second home at 90% loan-to-value, meaning at least 10% down, versus 95% on a primary residence. Expect to need a credit score around 680 or better for the best terms, rates modestly above primary-home rates, and enough income and reserves to carry both payments.

Beyond financing, the keys are choosing a location you’ll realistically use, budgeting the full carrying cost, taxes, insurance, maintenance, and utilities on two homes, and understanding the tax and rental-use rules before you close.

Learn more about buying a second home, including what it takes to qualify, what it costs to carry each year, and how rental use changes your loan and your taxes.

Key takeaways:

10% down is the floor: Second-home mortgages typically require at least 10% down and slightly higher interest rates than a primary residence, because lenders treat a home you don’t live in full-time as added risk.
Two payments, one file: Qualifying means carrying two housing payments in your debt-to-income ratio, so lenders scrutinize income, reserves, and credit more heavily than on your first purchase.
14 days is the tax line: Usage rules matter for both your loan and your taxes. A “second home” loan requires personal use, while heavy renting can reclassify the property and change your rate and deductions.

What does it take to qualify for a second-home mortgage?

Under Freddie Mac’s ratio requirements, a purchase on a one-unit second home is capped at 90% LTV, at least 10% down, while a one-unit primary residence reaches 95% and a one-unit investment property stops at 85%. Fannie Mae’s Eligibility Matrix sets the same 90% ceiling. Occupancy, not the property, moves the number.

Here’s what an underwriter looks at, in the order it causes trouble.

Down payment: Plan on 10% minimum, with mortgage insurance above 80% LTV just as on a primary residence. Putting 20% down removes the MI and usually improves your pricing tier.
Credit score: Lenders in Align’s network price their best second-home terms at 680 and up, with real improvements at 720 and 740. Near a threshold, credit and qualifying work before you apply is cheaper than a buydown after.
Debt-to-income ratio: Both housing payments count. Fannie Mae caps DTI at 50% through Desktop Underwriter; manual underwriting maxes at 36%, or 45% when the borrower meets specific credit score and reserve requirements.
Cash reserves: Under Desktop Underwriter a second home requires two months of reserves, principal, interest, taxes, insurance, and dues, where a one-unit principal residence has no minimum. Other financed properties add 2% of their aggregate unpaid principal balance at one to four properties, 4% at five to six, and 6% at seven to ten.
Occupancy and control: Fannie Mae requires a second home to be a one-unit dwelling you occupy part of the year, suitable for year-round occupancy, under your exclusive control, and not a rental, timeshare, or management-firm-controlled property.
Documented assets: Down payment and reserves must be sourced and seasoned in U.S. dollars. Funding from digital assets? Read how to buy a home with cryptocurrency and liquidate early. Conversion timing kills more closings than the guideline does.

Second home vs. primary residence vs. investment property

Occupancy is the switch that changes every number.

Feature	Primary residence	Second home	Investment property
Max LTV, 1-unit purchase (conventional)	95%, 5% down	90%, 10% down	85%, 15% down
Minimum reserves (Desktop Underwriter)	None on a one-unit	Two months’ PITIA	Six months’ PITIA
Rate pricing	Baseline	Above primary; agency upfront fees run 1.125% – 3.875% of the loan, tiered by LTV	Highest of the three
Rental use	Not applicable	Occasional only; you occupy part of the year and keep exclusive control	Rental is the purpose; projected rent can help you qualify
FHA or VA eligible?	Yes	No, both require a principal residence	No

That last row surprises people. FHA’s single-family programs are limited to owner-occupied principal residences, with occupancy required within 60 days and for a year afterward, and VA requires the borrower to certify intent to personally occupy the home.¹ So a second home is a conventional loan conversation, or a jumbo loan above the conforming limit. Because Align is a broker, we place that file with whichever wholesale lender prices second homes sharpest that week.

When it’s really an investment property

Fannie Mae states that rental income from a second home “cannot be used to qualify the borrower.” Whatever the place earns in July won’t help you get approved. Its definition of the alternative is one sentence: “An investment property is owned but not occupied by the borrower.” If the calendar belongs to guests rather than you, that’s the classification. You give up the lower down payment and better pricing; in exchange, documented rental income can help you qualify.

Choose honestly. Calling a property a second home when you intend to run it as a full-time rental is occupancy fraud, a misrepresentation on a federal loan application, not a technicality. If the plan is mostly rental, price the investment loan and move on. Our guide to preparing to buy covers the documentation you’ll need either way.

How much does a second home cost to carry?

The mortgage is only part of the bill. Say you buy a $350,000 lake cottage with 10% down, leaving a $315,000 loan with mortgage insurance because you’re above 80% LTV. Add property taxes of $5,600, a $2,400 insurance package because the home sits unoccupied much of the year, $1,800 in utilities and lawn or snow service, and $3,500 for maintenance, the low end of the 1% – 2% of value many owners set aside. That’s $13,300 a year, about $1,108 a month, before principal, interest, and MI.²

Four line items deserve a second look before you make an offer.

Insurance: A home that sits empty for weeks is rated differently than one you live in. Vacancy provisions, water-damage exclusions, and windstorm deductibles all move the premium, so get a bindable quote inside your inspection window.
Property taxes: Many states, Michigan included, tax a non-primary residence at a higher effective rate. Never budget from the seller’s bill. It reflects their exemption, not yours.
Closing the place up: Seasonal homes need someone to winterize plumbing, check for storm damage, and keep the driveway passable. Our vacation home maintenance tips cover what to schedule from three hours away.
Association dues: Resort condos and lake associations fund shared docks, roads, wells, and seawalls. Ask for two years of minutes and the reserve study before you waive anything.

Once the carrying cost is real on paper, the question becomes where it should be.

How to choose the right location

Drive time is the first filter, and it beats every other criterion. A property you can reach in two to three hours gets used on ordinary weekends; one five hours or a flight away gets used on vacations only. Decide which you’re buying before you fall for a listing.

Season length: A three-season cottage and a year-round home are different loans. Fannie Mae requires a second home to be suitable for year-round occupancy, so a place without permanent heat, insulated plumbing, or plowed road access can fail eligibility.
Short-term rental rules: Resort-town ordinances change fast, and some cap rental permits or ban them in residential zones. Confirm the ordinance in writing with the clerk, not the listing agent.
Hazard exposure: Shoreline erosion and flood zones drive both insurability and resale. Read up on buying waterfront property before you shorten an inspection window on a lakefront parcel.
Market depth: Resort markets are thin, so appraisals are less predictable and resale takes longer. Check months of inventory in the submarket, using the NAR vacation-home market research as a national baseline.

Try before you buy: Rent there for a week in the off-season first. February on an inland lake tells you more than July does. Road access, neighborhood occupancy, restaurant closures, whether you want to be there once the docks are out. It’s the cheapest due diligence there is.

Should you buy existing or build?

Building gets you the layout and year-round systems a rental or retirement plan needs, without the deferred maintenance of a 1960s cottage, but it takes longer. New home construction covers draws, timelines, and builder contracts, and the cost of building a house compares it against buying existing. In thin resort markets, construction cost often exceeds what comparable sales support, an appraisal problem, not a budget one.

Your second-home buying checklist

Six things separate a smooth second-home purchase from a stalled one, and five happen before you write the offer.

1. Get preapproved on both payments. Ask the lender to underwrite you carrying your current mortgage plus the new one, including taxes, insurance, and dues. A preapproval that ignores the real carrying cost isn’t a preapproval.
2. Hire a local agent, not your hometown agent. Resort submarkets turn on lake chains, association boundaries, and shoreline rules an out-of-area agent won’t know. Avoid dual agency.
3. Line up specialized inspections early. Well and septic evaluations, dock and seawall condition, roof age, and radon all take longer in rural counties. Book them the day you go under contract.
4. Confirm insurance and zoning in writing. A bindable insurance quote and a written short-term-rental answer from the municipality belong inside your inspection contingency.
5. Write an offer that fits a thin market. How to create a competitive offer in a July bidding war is a different playbook than negotiating in November.
6. Plan the closing logistics. Remote closings, mail-away documents, and a title company two hours away all add days. The home buying process guide runs from accepted offer to keys, and the broader home buying guide covers the fundamentals.

Taxes, rentals and long-term planning

The number to know is $750,000. Under IRS Publication 936, you can deduct home mortgage interest on up to two qualified homes, a main home and one second home, and for home acquisition debt secured after December 15, 2017, the limit is $750,000 combined across both ($375,000 if married filing separately). Debt secured after October 13, 1987 and before December 16, 2017 keeps the older $1 million limit. See the IRS rules on mortgage interest deductions for how the categories and the binding-contract exception work.³

How renting it out changes the math

Fourteen days is the hinge. Per IRS Topic 415, if you use a dwelling unit as a residence and rent it fewer than 15 days in a year, you don’t report the rental income and don’t deduct rental expenses. Rent it 15 days or more and you allocate expenses between personal and rental use, and the unit counts as a residence only if your personal use exceeds the greater of 14 days or 10% of the days rented at fair rental price.

Your loan cares too. Second-home financing requires personal occupancy and exclusive control; a property you run primarily as a rental belongs on an investment-property loan, at investment pricing and 85% maximum LTV. Handing a management company control of the calendar is a guideline problem, not a gray area.

Exit strategy and the capital gains gap

The home-sale exclusion doesn’t follow you to the cottage. IRS Topic 701 lets you exclude up to $250,000 of gain, $500,000 on a joint return, on the sale of your main home if you meet the ownership and use tests, owning and living in it at least 24 months of the 5 years before the sale. A second home you never make your principal residence doesn’t qualify, so plan for a taxable gain and talk with a tax professional early.

Two levers matter later. A second home can be refinanced on its own terms, our tips for refinancing a vacation home cover seasoning and appraisals in thin markets, and converting to an investment property is a re-underwriting event, not a paperwork change. Both sit inside the wider set of buying strategies and situations, and mortgage rate strategy matters more here because second-home adjustments vary so much by lender.

What Michigan buyers should know

Michigan is a second-home state, and two things catch buyers here: property tax treatment and seasonality.

No principal residence exemption: Michigan’s PRE exempts an owner’s principal residence from up to 18 mills of local school operating tax. A second home is nonhomestead property and doesn’t qualify, so budget the full non-PRE rate. A gap that can add well over a thousand dollars a year on a $350,000 cottage.
Up-north and shoreline markets behave differently: The lake chains around Traverse City, Petoskey, Charlevoix, and Houghton Lake, plus Lake Michigan towns like South Haven and Saugatuck, run on summer demand. Listings and comps thin from November through March, making appraisals less predictable and giving off-season buyers real negotiating room. Our housing market trends coverage tracks them.
Year-round occupancy is a financing question: Plenty of charming Michigan cottages are three-season buildings on seasonal roads. Because Fannie Mae requires year-round suitability, permanent heat, insulated plumbing, and maintained road access are eligibility items, not comfort items.
Rental ordinances vary by township: Neighboring townships on the same lake can give opposite answers on short-term rentals. Get the ordinance in writing if rental income is part of your plan.

How Align fits your buying strategy

Local real estate agents bring Samantha in for a second opinion when their buyer arrives preapproved somewhere else. She regularly finds a lower rate or less cash to close, whichever helps the buyer more.

That comes from the broker model. One application goes to multiple wholesale lenders, so your offer is built on the loan that fits your situation, not the only one a single bank sells. A 2024 Polygon Research analysis of federal mortgage data found broker borrowers paid about $10,662 less over the life of a $400,000 loan than borrowers at nonbank retail lenders.

Build your homebuyer game plan

Sources: Polygon Research, Loan Costs Channel Study 2024 (2023 federal HMDA data, 30-year fixed purchase loans; commissioned by United Wholesale Mortgage and Willow Canyon Advisors).

FAQ: Buying a second home

Here are answers to common questions about buying a second home.

What are the requirements to buy a second home?

Expect a minimum 10% down payment on a conventional loan, a credit score generally 680 or better for good pricing, and a debt-to-income ratio that supports both housing payments, usually under about 45%. Lenders often want cash reserves covering two to six months of payments on both homes. The property must also be for your personal use to qualify for second-home financing. If your documentation isn’t assembled yet, start with preparing to buy.

Are mortgage rates higher on a second home?

Yes, modestly. Lenders price second homes above primary residences because borrowers under financial stress default on the vacation place before the roof over their head. Agency loan-level pricing adjustments for second homes also push rates up. The premium varies by lender and loan profile, which makes shopping multiple lenders, or using a broker who does it for you, especially valuable here. If rates improve later, our guide to refinancing a second home covers the timing.

Can I rent out my second home?

Some, yes, but the loan and tax rules both care how much. Second-home mortgages require that you personally use and control the property; renting it occasionally is generally fine, but operating it primarily as a rental fits an investment-property loan instead, at different pricing. For taxes, renting it more than 14 days a year triggers rental-income reporting and shifts which deductions apply. Weigh the tradeoffs in the pros and cons of investing in a vacation rental.

Is buying a second home a good investment?

Treat it as a lifestyle purchase first and an investment second. A second home can build equity and appreciate, and part-time rental income can offset costs, but two mortgages, maintenance on two properties, insurance, and vacancy risk cut into returns. If pure return is the goal, an income-focused investment property usually pencils out better than a vacation home you love.

The bottom line on buying a second home

Buying a second home is a financing conversation before it’s a location conversation. Conventional financing caps a one-unit second home at 90% LTV, at least 10% down, against 95% on a primary residence and 85% on an investment property, and adds two months of reserves, both housing payments inside your DTI, and an occupancy rule that takes FHA and VA off the table. Budget the full carrying cost, confirm the home works year-round, and settle the tax and rental questions before you make an offer.

If you’re ready to buy a second home, talk to Align Lending, we’ll shop your scenario across our lender network and show you the numbers side by side, so the rate premium on your second home stays as small as possible. Call 248-506-5727 or start online today.

Footnotes:

Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA program requirements are set by HUD in the Single Family Housing Policy Handbook 4000.1 and in mortgagee letters, and are subject to change. Return to text
Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your rate and terms will depend on your application and market conditions. Return to text
This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Tax rules change and apply differently to every household; consult a qualified tax professional about your specific situation before relying on any deduction described here. Return to text

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation. Program terms and figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.