The Basics of Buying a Second Home in Another State

How to buy a second home in another state

Buying a second home in another state is quite common — especially these days, when many people are working remotely and have job flexibility that allows them to sign on from different locations.

While buying a home in another state might seem daunting, it’s not too dissimilar from buying a house down the street. You’ll still do a majority of your search online, and you’ll work with agents and other pros along the way (you’ll just spend more time doing this over the phone and via text than in person). Thanks to tools like virtual tours and 3D walkthroughs, the actual touring part isn’t difficult either.

Thinking about buying a second home in another state? Here’s your guide.

Check your eligibility for a second home loan. Start here.

What's in this Article?

Find the right real estate agent

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Check your emotional bias

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Consult your CPA regarding tax implications

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Get preapproved by a lender

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Plan a trip to look for homes

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Close on the home

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Find a real estate agent who specializes in the area you want to move

Having a great real estate agent is vital when you’re buying a home in another state. You need someone on the ground who can vet properties, negotiate your offer, and be there for inspections and other key appointments on your behalf.

First things first, you need to find a real estate agent who’s licensed in the state. You also want someone who’s deeply experienced in the exact city (ideally, the exact neighborhood) in which you want to buy.

Before choosing an agent, ask a few questions. Are they willing to provide video tours via Facetime, Zoom, or some other conferencing software? Sure, you’ll look at online photos and videos yourself, but a personalized video tour will give you a better sense of the property and allow you to ask questions along the way.

Ask whether they’ve worked with out-of-state buyers before as well. Someone who is accustomed to doing virtual tours and negotiating offers at a distance is probably better suited to your needs than someone who works most often with local homebuyers they can meet in person.

Reach out to the neighbors

Ideally, you’ll spend a good amount of time in the area you want to buy your second home. While you’re visiting, make a point of chatting with the neighbors. Not only will they give you the scoop on the local community, you can also get a sense of whether you’ll likely fit in and enjoy the area.

If you’re not able to spend much time on the ground there, ask your agent whether they can refer you to past clients who live nearby so you can ask them questions about the city or town. You can also hop on any local Facebook groups or pages.

Ask questions like:

  1. What’s it really like to live there, even just for part of the year?

  2. What is traffic like?

  3. How are the noise levels?

  4. What communities do they recommend?

  5. Are they glad they purchased a home there, whether as a permanent or vacation home?

More importantly, ask locals if they’d buy there again if given the chance. A chorus of “yeses” is a pretty good sign you’ve chosen a great place.

Check your emotional bias

It’s easy to have positive feelings about a location you’ve visited for a week or two on vacation. But keep in mind that every place becomes less exciting after repeat exposure. And things that seemed charming on a short visit — like narrow streets near the historical district, lakefronts packed with picnickers, or the bustling tourist attractions downtown — might lose their appeal once you’re a resident.

Giving yourself some time to reflect will give you a chance to make sure it’s really worth the long-term commitment and that you truly want to spend more time there.

To make sure you’re not making the area out to be more than it is, give yourself a cooling-off period after your next trip. Does your fondness for the place remain once you’re home for a few weeks and back to your normal routine? Do you know that your day-to-day life there will be as happy and fulfilled as you think?

After all, chores are chores wherever you are. It’s easy to idealize a favorite vacation spot because it represents a break from the norm. Are you sure you want to bring “real life” to your getaway location?

Giving yourself some time to reflect will give you a chance to make sure it’s really worth the long-term commitment and that you truly want to spend more time there.

Consider lending rules — especially if you plan to Airbnb the home

Have a good idea of how you’ll use the home, as it could impact your mortgage options. Some loans — including FHA, VA, and USDA — can only be used to finance primary residences. But you can use a conventional loan to purchase vacation homes and investment properties.

But can you rent out the vacation home on a short-term basis while you’re not there? Actually, yes you can as long as it’s a standard Fannie Mae conventional loan.

Fannie Mae states in its second home rider that you can use the property as a short-term rental as long as there are no management companies involved and you maintain control.

The property should still primarily be for your “personal use and enjoyment” for the first year, according to the rider. After the first year, you may be able to rent it out in a more serious manner, but Fannie Mae does not specifically condone that.

If you plan to rent it out full-time right away, you’ll be in breach of contract. In that case, you’ll need to buy the home as an investment property and incur higher rates, fees, and down payment requirements. But that’s better than having the loan called due.

Additionally, if you think you may rent your home out on Airbnb — even just a few times a month — make sure you understand the local laws around those types of properties. Some municipalities have specific rules around renting out parts of a home for short-term rentals, so do your homework before you buy the home.

Check with your CPA on tax implications

Buying a second home in another state could also have tax implications if you rent the property out.*

A home rented for more than 14 days per year counts as a rental property in the eyes of the IRS. Because of this, you may owe taxes on any rental income you earn, and you won’t be able to deduct the interest paid on the home’s mortgage loan.

There may be tax benefits, as well though, if you rent out the home. We’re not tax advisors, so consult your accountant before buying the home so you can maximize the benefits without incurring a much higher tax bill than you expected.

Research property taxes and insurance costs

While the sale price of the home is certainly important, it’s not the only thing that plays into the costs of a second home. Make sure you factor in all the expenses of owning the property, including:

  1. Property taxes

  2. Home insurance

  3. Flood insurance, depending on the home’s location

  4. Homeowners association dues

  5. Maintenance, upkeep, and repairs

These costs can be drastically different where you’re buying versus where you live.

Make sure buying the home isn’t just a very expensive hotel stay

In most cases, simply booking a hotel is a lot cheaper than buying a second home in another state — even if you go somewhere frequently.

Sometimes, though, it can make sense to buy a second home if you:

  1. Visit often (especially for extended periods)

  2. Believe home prices will go up in the area

  3. Can use the home for a second income stream

You might want to create an Excel sheet of the costs you’d face over the next five to 10 years to see if buying in the area is truly a wise decision.

While the sale price of the home is certainly important, it’s not the only thing that plays into the costs of a second home.

You can also have your accountant run the numbers on how much you’ll likely earn from rental income. If you’re buying a home in a popular vacation area, are you sure there will be demand for rentals during the off-season?

Maybe you’re hoping to earn enough rental income to cover the mortgage payments on the new home, and that’s why you feel you can afford the property in addition to your current home. Make sure you understand the local market well enough to estimate the demand for rentals and how much you can realistically earn on the property.

Your accountant can help you break down the costs associated with renting out a home to figure out whether this purchase is really worth it.

Get preapproved** by a lender licensed in the state

Don’t assume the loan officer who helped you buy your first home can help you buy your second one in another state. While some mortgage lenders are licensed in all 50 states, others are licensed in only one or two. Always check what licenses a lender has before filling out a mortgage application.

Related reading: When to Get Preapproved for a Mortgage (Hint: Before Scrolling Zillow)

Once you’ve decided on a lender, fill out their application and get preapproved for your loan. You’ll include your preapproval letter with any offers you make.

Connect with a lender to start the preapproval process.

Consider tapping into your primary residence’s home equity

In some cases, you may be able to buy your second house in cash by leveraging the equity on your first property. This is done through either a cash-out refinance, a home equity loan, or a home equity line of credit (HELOC).

Talk to your loan officer about whether this is the right move for you. They can help you weigh the pros and cons of using your home equity on your first home versus taking out a second mortgage altogether.

Plan a trip to visit homes

This will be tough because not all properties that interest you will be available at the same time. You may not be able to see 10 homes on a single visit (or even two or three!)

This is why desk research is incredibly important when buying out of state. Look at dozens of homes online, and get personalized video tours of ones you’re really interested in. Here’s where having a hands-on real estate agent really helps. If your schedules don’t sync up for a live virtual tour, ask them to see the house and make a customized video for you.

Tell them your priorities — number of bedrooms, square footage, yard size, layout — so they can focus on those in the video. That’ll help you get a sense of whether the home is a contender, even from afar.

Narrow down your options as much as possible before you visit and tour homes, and be pretty confident that “the one” is on your shortlist before you visit. You don’t want to be traveling every weekend just to see a new listing.

Close on the home

If your lender allows e-closings, this should be a snap. Some lenders now let you sign final documents electronically, all from a computer or mobile phone.

If they don’t, allow extra days at the end of the process for the lender to set up a signing with an escrow agent near you.

After you sign, send the final documents back to the lender via FedEx, UPS, or the like. All this can take a few days, so plan ahead.

Build your local team

Now that you’re the proud owner of an out-of-state second home, start building a local team to help you maintain the property. Put together a list of reputable plumbers, electricians, and general handymen in the area to call if something goes wrong while you’re away.

You may also want to hire a local or even professional management company to walk through the home every so often. They can catch a leaking pipe or a faucet left on by a guest. Catching things early can save you a lot of money in the long run.

A property manager will be especially important if you plan to rent out the home when you’re not there. You need someone local who can deal with problems, and fix things quickly if a short-term renter requests it.

Buying a second home in another state FAQs

Obviously, buying a home in another state has its nuances, but it’s not impossible by any means. Still have questions? Here are some of the most common:

Is it hard to buy a house in another state?

No, it’s not hard — especially in today’s environment. Thanks to the pandemic, many agents, lenders, and other real estate professionals have adopted virtual tools that make remote homebuying easier. Just make sure you choose your vendors carefully, and it should be a cinch.

Can I buy a second home with no down payment?

Most low and no down payment programs are for primary residences only. If you’re buying a vacation home, you’ll likely need a higher down payment — possibly 10% — and better credit than you would with a primary home. With that said, taking money out of your first home may be a way to cover that down payment more easily. Just opt for a cash-out refinance, and use the extra funds to finance your second home. Or, use a home equity line of credit for the down payment or to buy the second home outright.

Is it hard to get approved for a mortgage on a second home?

Borrowers are typically held to stricter standards when applying for a mortgage for a second home. For one, the lender wants to be sure the borrower can handle the second home payment on top of their primary residence payment — especially if they were to lose their job or experience an income cut. You can’t use proposed rental income to qualify for the second mortgage, so you basically have to earn enough regular income to cover both mortgages and still be within debt-to-income limits. In most cases, a loan on a second home will require a good credit score and a higher down payment, as this reduces some of the risk.

Easier than you’d think

A second home in another state can be a great investment — and it isn’t as hard as you’d think. Just align yourself with the right partners, do your research, and get comfortable with virtual tools. The rest is (relatively) easy.

Ready to buy a second home? Connect with an experienced lender.


*This article does not constitute tax advice. Please consult a tax advisor regarding your specific situation.

**Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.

Fairway is not affiliated with any government agencies. These materials are not from the VA, HUD, FHA, USDA, or RD, and were not approved by a government agency.

Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.

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