Many families decide to buy a second or "vacation" home. The process will be similar to when you bought your first home. Your lender will ask you for the same paperwork that you had to supply when you bought your primary residence and you will go through a similar "house-hunting" process. When you are ready to buy that second home that you've been hoping for, there are just a few differences between a primary resident and a secondary or vacation home that you should be aware of.

Recognize a Lender's Interpretation of a Second Home

Your lender will want to go through a validation process to officially identify your home as a secondary residence. The first thing that your lender will examine is whether or not your proposed second home is smaller than your primary residence. Your lender will consider not only the square footage of the home but also the price. The next thing that the lender will consider is the distance between the primary and the secondary homes. Your two properties must be at least 100 miles away from each other. If you meet these criteria, then your new purchase can be classified as a second home for lending purposes.

For most people, their second home does not meet these requirements. However, the down payment amount for a second home that does not get official second home determination from a lender is not that much more than that of a primary home. If your home does get second home status for lending purposes, you can anticipate your required down payment amount to be slightly less. Without this status, however, your down payment amount will still be very reasonable. Your down payment for your second home should be between five to ten percent. As with every mortgage, the more money you can put down the lower your interest rates and monthly mortgage payments will be.

You Should ask Your Lender About Variations Between Financing Options

When purchasing a second home, you have the same availability in loan products as when you finance a primary home. However, you might want to consider other options for financing. Discuss your long-term and short-term plans with your lender. If you plan on keeping your second home for a long time, a fixed rate loan would suit you best. On the other hand, you might consider this home a short term investment. If this is the case, an adjustable rate mortgage, or even a balloon could be considered. These loans could get you into a home with a much lower rate than a fixed, and thus save you money.

Be Informed When Buying a New Home

Many second home mortgages get the same rate as a first home purchase. Some circumstances in a buyer's financial portfolio can change the mortgage rate. In most cases, the increase is only one-eighth of a percent. Rarely will the increase exceed one-fourth of a percent.

To figure out how much the interest rate will affect your monthly payments, use a mortgage calculator and factor in the going interest rate with a five percent down payment and add a quarter of a percent to the interest rate. Don't forget that interest paid yearly on a mortgage is tax deductible, so your second home can be an excellent way to help yourself financially as long as it is within your budget and contributes to your overall financial interests.