Options for Affording a Second Home

For many families, the thought of owning a second home for vacation use is something that’s reserved for those lucky enough to have last names like Rockefeller, Warren, and Gates. But, the truth is, not every vacation home costs an excessive amount of money. If you have the right resources and you go through the right channels, buying a second home is something that many households might be surprised to discover they can actually do, as long as certain hurdles can be overcome.

Of course, the biggest concern with buying a second home is the fact that it adds a second set of expenses to a family’s budget, so above all, you need to be sure you can afford to pay for two homes. This means taking on another mortgage, another homeowner’s insurance policy, more property taxes, and another home’s maintenance costs and utility bills. Another challenge of buying a second home is that second home mortgages are not eligible for FHA financing. This means you will have to come up with an alternative way to pay for your new home.

Here, Trusst’s custom builders in Wilmington NC share some of the most common options second home buyers fall back on to get the vacation homes of their dreams.

Home Equity Loans

If you have lived in your home for a while, and your property value wasn’t destroyed by the housing crisis, then you might have enough equity in your home to take out a home equity loan to help pay for your second home. The biggest challenge with this route is that some lenders just don’t like to approve sizable home equity loans because they eat up too much of the principal residence’s equity. They do this for a reason and it’s because they fear that should home values decline and the homeowner runs into financial trouble, the homeowner will be more committed to making their mortgage payments on their primary home instead of the vacation home.

Conventional Loans

For those who want to finance their second home, a conventional loan is a viable option, but these types of loans do require a much larger down payment than a primary residence home that’s eligible for FHA financing. In most cases, the buyer is required to put 20% of the home’s price down to secure a mortgage through Freddie Mac or Fannie Mae, but if another lender is used, you can expect to have to put down anywhere from 30% to 35%.

Conventional loans also tend to have higher interest rates and tighter guidelines as well. For instance, to qualify for a conventional loan on a second home, a higher credit score is going to be needed, typically between 725 and 750. Your monthly debt-to-income ratio also needs to be very strong. You should also expect the lender to require detailed income and asset documents. This is because the lender will want to verify that you have the cash reserves and income necessary to handle two mortgages. It is also important to know that if you are intending to rent out the home when it is not in use, the lender will not consider the income you expect to receive from the rental on your loan application.


Of course, the easiest way to buy a second home is to simply pay cash for it. This will enable you to avoid any potential problems that can arise from trying to finance it. And, this makes cash one of the most common ways second home buyers pay for their vacation homes. In fact, according to the National Association of Realtors (NAR), 36% of all second home buyers in 2010 paid cash for their homes and 59% of all investment buyers also paid cash. Of course, the biggest concern with paying cash for a second home is saving that much money isn’t always easy, especially in today’s economy.

Looking to Have a Vacation Home Custom-Built? Trusst’s Custom Builders in Wilmington NC Can Help

If you don’t want to restrict your second home buying options to existing homes on the market, you don’t have to. With Trusst Builder Group, you can get a custom-built second home at or near the price of an older existing home on the market. In fact, a large portion of our clients are second home buyers, so we have the resources and options you need to get the home you want at a price you can afford.

Call Trusst Builder Group today at 910-371-0304 to schedule a consultation with one of our custom home builders in Wilmington NC. We’ll design and build you the vacation home of your dreams.