6 things to know about buying a second home or vacation home

For many Americans looking to make profitable long-term investments, buying a second home or a vacation home can be a highly attractive option. After all, with property-value appreciation, tax advantages and the potential for added monthly cash flow via property rental all factored in, residential real estate can be among the safest and most lucrative investment options out there. And of course, for those who own vacation properties, the perks can be plentiful when the time to get away from the daily grind comes around.

Are you and your family thinking about purchasing a second home or a vacation home? Before making the leap, it’s a good idea to gain a better understanding of the lending process and particulars for second homes and vacation homes — which can differ significantly from those for rental properties and primary residences (primary home mortgages). Consider these six important things to know about your potential purchase:

  1. Your first home could help you buy your second: For homeowners who have a large amount of equity in their first home, the situation can provide big advantages when it comes to funding their second. One mortgage option that may be worth considering in these cases is cash-out refinancing, which allows homeowners to access their current home’s equity by replacing their current mortgage with a new, larger mortgage. Others include the home equity loan and home equity line of credit, which use the homeowner’s home equity as collateral for obtaining money via a second loan or line of credit.
  2. The way the home will be used can have mortgage impacts: How you plan to use your second home can affect how it is classified by the lender — and thereby affect your mortgage on it.
    The home can qualify as a vacation or second home (which typically enables a lower down payment and interest rate) if:
    – the home belongs only to the buyer
    – the owner will live in the home for at least part of the year
    – the home is a single unit that can be used throughout the year
    – the property is a minimum distance from the owner’s primary residence
    – the home will not be rented out over the long term or controlled by a property-management firm
    The home is considered an investment property (which typically carries a higher down payment and interest rate) if:
    – it is bought solely for renting out or for flipping and selling for a profit
    – the property consists of multiple units
    Either way, the underwriting process for your second mortgage is likely to bring more challenges than your first one did, including higher interest rates, the requirement for a larger down payment, higher standards for your credit score and debt-to-income ratio, etc. This is mainly because most lenders will assume that, should financial issues arise, most borrowers tend to place a higher priority on keeping up with their primary residence’s mortgage than that of their second home.
  3. The purchase is also likely to have tax implications: If you intend to rent the property out, whether for shorter-term vacation rentals or to longer-term tenants, the rental income you take in throughout the year will be taxable. On the other hand, as the owner of the property, you may also be able to claim tax deductions for property-related expenses such as repairs, operating expenses, property taxes, mortgage interest and depreciation.
  4. Location is key: You’ll want to carefully evaluate whether the property is in a location that meets your needs. If it’s too far from your primary residence, you may not be able to visit it frequently enough to make the purchase worthwhile. And if you plan to rent the property out as a vacation rental, you’ll want to choose a home in a location that’s popular enough to keep it occupied as much as you’d like.
  5. The ‘hidden costs’ could surprise you: From a financial perspective, buying a second home will cost you significantly more than just the monthly mortgage payment. Other expenses you should be prepared to pay include insurance premiums, maintenance costs, utility costs, taxes and furnishing costs.
  6. Planning ahead is important: Of course, before buying a second home, you’ll need to make some careful considerations to determine whether or not you can comfortably afford the property and all associated expenses — in addition to any other financial obligations you may have such as your first mortgage, college tuition costs, car payments, etc. Further, you’ll need to decide how you’ll finance the purchase, with the options mentioned above being among the possibilities. In addition, it’s important to determine in advance who will maintain the property so that your investment is protected. If the property is near your primary residence and you’re comfortable doing so, you may be able to perform most of the upkeep and repairs yourself. But if not, you’ll want to find a trustworthy caretaker who can reach the property quickly when needed.

When you’re ready to apply for a mortgage to cover that second home or vacation home, Arthur State Bank is here to help. And to make the process as easy as possible, we now offer online mortgage applications.


Proudly serving South Carolina since 1933, Arthur State Bank offers accounts and services to meet a variety of financial needs. To help you achieve all your financial goals, the bank offers in-person service as well as a range of convenient digital solutions. To learn how Arthur State Bank can help you with banking needs ranging from checking and savings to retirement accounts, mortgages, other personal loans and more, visit arthurstatebank.com.

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AnnualCreditReport.com is the only source for free credit reports authorized by the federal government. Every 12 months, you can get a free copy of your credit report from each agency.

Your credit report has your credit history for all of your credit accounts as well as any credit inquiries and public record court information such as collections. In addition, the report provides personally identifiable information such as your name, address, and employment.

Be sure to carefully review all three reports to identify any problem areas that you may need to clean up prior to applying for a mortgage. If there is any incorrect information, follow the reporting agency’s rules to correct it or add a notation to the report to explain the situation.

Your FICO Score is a score combines data from several areas include payment history, the amount owed, length of credit history, new accounts. Many lenders use this score as a guide. This score is not provided as part of the free annual credit report.

Learn more about how your credit score impacts your ability to secure a loan.


Couple looking over finances

Primary considerations for setting your housing budget require an assessment of your income, debt and current savings for the down payment on the home. The following are generally recommended guidelines; however, you should meet with an Arthur State Bank lender to get personalized mortgage information.


Couple meeting with lender

The pre-qualification/pre-approval letter is included with any offer you make on a house to inform the seller that you have met with a mortgage lender and you are prepared to make an offer. The letter states that based on certain assumptions, the bank is prepared to lend you up to a specified amount of money for a home mortgage.

When choosing a loan officer, we recommend going local to work with someone who understands your community’s real estate market. This blog on first-time home purchases includes questions to ask your lender that may be helpful when preparing for your meeting.

Helpful Resources:


Realtor shaking hands with a client

When a house is sold, the seller typically pays real estate commission to both the listing agent and the selling agent. It is extremely beneficial for the buyer to use their own real estate agent. Loan officers can often recommend selling agents in the area; ask your officer about realtor referrals when discussing your loan.

A good realtor will know the local market and can help you find an ideal home based on your budget, location and desired features. During your search, understand that you will most likely need to compromise on some items, so it’s important to identify your critical needs versus your wants.


Couple searching online for a home

Additionally, when you start with the house search and work backwards, homes can often go off the market while you’re completing steps 1-4. While browsing homes immediately can be tempting, we recommend following these steps in order so that, once you find your dream home, you’ll be well-positioned to take action immediately.

When you find the home you want and you think you are ready to put an offer on it, you will want to make sure you have all the information you need to make a solid offer.

  • Evaluate the neighborhood.
  • Drive by the house at different times of the day.
  • Examine how other houses in the neighborhood are maintained.
  • Consider any potential traffic or other disruptive noise.
  • Is there ample parking for you and visitors?
  • Read the details in any Homeowner Association agreements (HOA fees and rules).

Make sure to do a preliminary check of house details:

  • Check the water:
  • Does it have good pressure?
  • How long does it take to get the water hot?
  • Is it well water or city water?
  • Turn light switches on and off.
  • Open and close doors and windows to make sure they work properly.
  • Review previous utility bill expenses.
  • Consider the property tax bill.


Family meeting with realtor at new house

When writing an offer contract, be sure to pay attention to all of the details.

Offer Price:

Your agent should do a market analysis that pulls data on recently sold comparable houses. The best comparisons will come from the same neighborhood.

If you are asking for the seller to pay some of the closing costs, remember that this cost plus the sales commission determines the net amount you are offering the seller for the house.

Work with your agent on your negotiation strategy. There are many things to consider, such as how badly you want this particular house, whether it is a buyer’s or seller’s market and an assessment of the seller’s motivation to get the property sold.

There isn’t one best strategy.

Be sure to document in writing everything you want included with the house, such as appliances, etc. Your agent should guide you through the contract step-by-step.


  • Home inspection.
  • Mortgage.
  • Final walk through (24 hours prior to closing).

Proposed closing date. Typically, this is 30-45 days from an accepted offer.

A good-faith deposit is required for the offer. This is typically between 1-10% of the purchase price of the house. The deposit is kept in escrow until closing and the money is applied to the purchase price of the house at closing. If the house does not close due to one of the contingency clauses, the buyer receives their money back. However, if the buyer decides not to close on the property, the seller may get the deposit money.

Attach your pre-approval letter to the offer.


Two people in professional meeting

The clock starts ticking for everything documented in the contract, including mortgage application, inspections and closing date.


Woman advising other woman on mortgage application

You will need to decide which mortgage to select prior to the application.

Plan for the following potential fees:

  • Application fee (many banks and mortgage companies charge an application fee; however, there is not an application fee at Arthur State Bank).
  • Credit check.
  • Appraisal (may be paid at closing).
  • Loan origination fee (paid at closing).

Once you have approval for your loan, make sure you don’t change anything that will impact the status of your mortgage. Banks do a final check on credit and jobs just prior to closing, so now is not the time to change jobs or make another purchase on credit such as a car or furniture.


Home inspector going over findings with home owner

Depending on the size of the house, an inspection can cost on average between $300 to $1000.

Many real estate contracts specify how problems uncovered in the inspection will be resolved, up to a certain dollar amount. Should necessary repairs exceed that amount, the buyer has the option to cancel the contract without penalty and receive their deposit money back. Another option is for the buyer and seller to renegotiate who will pay for additional repairs.


Woman happily holding keys to her new home
  • Homeowner’s insurance is required by the lender prior to closing on the loan.
  • Turn on utilities in your name, effective the closing date.
  • Change your address with the U.S. Postal Service.
  • Make moving arrangements.

Three days prior to closing:

  • You should receive your final Closing Disclosure from the closing agency. The final Closing Disclosure shows a column for the seller and a column for the buyer. All closing charges and credits for both the seller and the buyer are documented in the closing statement.
  • Review the closing statement for accuracy prior to coming to closing.
  • The final amount in the buyer’s column shows you the amount of money you need to pay at closing.

The closing office will provide specific payment instructions. Closing funds have become recent targets for cybercriminals. If you are asked to use a wire transfer, call the office and ask to speak to someone you have been working with to double-check the instructions.

Closing day:

In South Carolina, the closing will usually take place at the attorney’s office. Everyone signing for the mortgage must be present to sign the closing paperwork. Make sure you bring the following:

  • Cashier’s check or proof of payment for wire transfer.
  • Driver’s license.
  • Checkbook, just in case there are any additional items that were not on the closing statement.

Be sure to understand this information:

  • How and when you will pay:
  • Your mortgage.
  • Your property taxes.
  • Your homeowner’s insurance.
  • Any HOA dues.
  • Who to call with any questions.

The best practice is to go through the homebuyer’s roadmap in this sequence. However, if you jumped ahead early in your journey, just circle back to address the steps you missed.

Arthur State Bank’s loan officers are closely tapped into local real estate markets and experts at helping clients get what they need on terms that work for them. We also offer mortgage specials for first-time homebuyers.

To start planning your journey to your dream home, try out our mortgage calculator. If you’re ready to talk to a loan officer, contact Arthur State Bank to request personalized mortgage information today. Don’t forget to ask about our first-time homebuyer offer.