6 second home down payment options for 2023

Published Date: October 28, 2022

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Buying a second home is exciting, but coming up with the down payment can be daunting. The good news is that if you already have one home purchase under your belt, you’re in a stronger financial position now than you were when you bought your first home. There are a variety of second home down payment options to make it manageable.

But first, are second home down payments always required?

In the majority of cases, a down payment on a second home is required. If you plan to pursue a conventional loan for financing a second home, you’ll need to put money down upfront since they aren’t backed by the government. Even if you plan to pay for the home entirely in cash, you’re still technically putting down a large payment. If you plan to turn your second home into a primary residence, then it’s possible to get a government-backed loan. In that case, you won’t need a down payment for a second home.

How much do I need for a down payment on a second home?

The down payment for a first home can be as low as 0% and as high as 20% for a conventional loan. But the required down payment for a second home is around 10%, and sometimes more than 20%. The amount you’ll need for a down payment on a second home depends on several factors, including your credit score, your debt-to-income (DTI) ratio and the cost and type of property you’re purchasing. Down payments and interest rates for second homes can also vary depending on the lender, so it’s a good idea to shop around. Here is a closer look at how these factors can affect your down payment:
  • Credit score: The higher your credit score, the less money lenders will require for a down payment on a second home.
  • Debt-to-income ratio: A lower DTI can often mean a lower down payment for your second home.
  • Type of property: A second home classified as an investment property will require a higher down payment than one classified as a vacation home.  
  • Cost of property: Financing a less expensive property is a lower risk for a lender, so it will require less money down.
Now that you know how the down payment amount is determined, let’s look at how you can come up with this money. 

How can I fund my down payment on a second home?

An image displays 6 ways to make a second home down payment.
A down payment for a second home can be as simple as accessing funds from a bank account or as creative as combining sources of funding, including the equity you’ve built in your primary residence and selling other assets. To help you determine how to best fund the down payment for your second home, here are the pros and cons of using different funding sources. 

1. Bank account

Using your personal bank account to fund your second home down payment is about as easy as it gets. The money is easy to move around and will only accrue low interest if left in the account. It may be smarter to use it rather than taking out a larger loan.  
ProsCons
MONEY IN A BANK ACCOUNT IS EASY TO ACCESS AND TRANSFER AND WON’T ADD TO YOUR DEBT LOAD.SPENDING TOO MUCH CASH ON A DOWN PAYMENT CAN REDUCE THE AMOUNT YOU HAVE ON HAND FOR THINGS LIKE HOME MAINTENANCE AND FURNISHINGS.
 But that’s not the only personal fund you can tap into for financing a second home.

2. Investment account

Using money from your investment account is similar to withdrawing it from your savings account. The only difference is that you may need to pay taxes on any gains the money made while it was invested.
ProsCons
MONEY IN INVESTMENT ACCOUNTS IS EASY TO ACCESS, AND USING IT WILL NOT AFFECT YOUR CREDIT SCORE. YOU MAY EVEN SEE A RETURN ON YOUR INVESTMENT IF YOUR SECOND HOME INCREASES IN VALUE OVER TIME.THE REAL ESTATE MARKET CAN BE RISKIER THAN SOMETHING LIKE A MONEY MARKET ACCOUNT, SO THERE’S LESS CERTAINTY OF A RETURN ON YOUR INVESTMENT.
If you’re short on savings, consider selling property to close the gap.

3. Sale of an asset

Selling assets when you come up short on funds may be the only way to keep that second home of your dreams from slipping through your fingers. 
ProsCons
SELLING AN ASSET TO FUND YOUR DOWN PAYMENT CAN SIMPLIFY YOUR FINANCIAL SITUATION AND LESSEN PHYSICAL AND FINANCIAL RESPONSIBILITIES.LENDERS MAY BE LESS LIKELY TO GIVE YOU FAVORABLE TERMS IF YOU DON’T HAVE SOLID ASSETS FOR COLLATERAL.
If you see your property as a better investment than your savings, it may be worth it to use your retirement account to fund the down payment. 

4. Retirement account

This second home down payment strategy is more age-sensitive than others, and isn’t recommended for people who plan on retiring in the near future. 
ProsCons
THERE’S VERY LITTLE RISK INVOLVED WITH USING YOUR RETIREMENT FUND FOR A DOWN PAYMENT IF YOU HAVE PLENTY OF TIME BEFORE YOU RETIRE.YOU WILL FACE PENALTIES, FEES AND TAXES ON THE MONEY YOU WITHDRAW FROM YOUR RETIREMENT FUND, MAKING IT AN EXPENSIVE FINANCING OPTION.
If you’re not comfortable dipping into your savings or selling assets, there’s still an option for outside funding help. 

5. Home equity loan or HELOC

Home equity loans are one of the most popular financing options for second home buyers. They work by taking out a line of credit against the equity you currently have in your primary home. 
ProsCons
HOME EQUITY LOANS AND HOME EQUITY LINES OF CREDIT (HELOCS) TYPICALLY COME WITH LOW INTEREST RATES AND LARGE LOAN AMOUNTS.THIS LOAN CAN AFFECT YOUR CREDIT SCORE AND DTI, LOWER YOUR CHANCES OF GETTING FINANCING, AND PUTS YOUR PRIMARY RESIDENCE AT RISK IF YOU CAN’T REPAY THE LOAN.
But we still have one more way to make that down payment on your second home.

6. Combine any of the above

While sticking to one funding source may not be enough for your down payment — or put you into financial jeopardy — using a mix-and-match approach may improve your situation.
ProsCons
MULTIPLE SOURCES CAN PROTECT YOUR CREDIT SCORE AND DTI, AND ENSURE YOU HAVE ENOUGH CASH ON HAND FOR EMERGENCIES.ANY OF THE DRAWBACKS ABOVE MAY STILL APPLY, BUT WITH LESS IMPACT ON YOUR FINANCIAL SITUATION.
Mitigating risk is still important even though real estate is considered a relatively safe investment. Look into each of these strategies further to learn which is best for you in financing a second home.

Any tips on how I can reduce the down payment on my second home?

One of the best ways to lower the out-of-pocket expense for a second home down payment is by reducing how much you’re paying for the home. But that doesn’t necessarily mean sacrificing square footage, quality or location. Pacaso’s LLC co-ownership model allows you to own one-eighth to one-half interest in a beautiful, spacious second home in a prime vacation destination, giving you full ownership rights without the full price tag. Pacaso also offers a variety of financing options to help you achieve your dream of second home ownership.

FAQs on second home down payments

Read on for more insight into second home down payments.

Do you have to put 20% down on a second home?

A down payment of 20% isn’t always required for purchasing a second home. The lowest down payment you can expect to pay is 10%. Ultimately, the lender you use and your financial situation will determine the down payment you must have.

Can you write off a second home?

Second homes are eligible for tax deductions, but it will depend on how the house is used. Investment properties can deduct maintenance expenses, while deductions for personal vacation homes are much more limited.

Can a married couple have two primary residences?

No. A married couple can claim only one primary residence on their taxes. This is the home where they live for the greatest amount of time throughout the year.

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Kasey Tross


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