A cabin near the water, a weekend retreat, a second base for work -- whatever is pulling you toward a second home, buying one is a different exercise than buying the house you live in every day. The loan is underwritten differently, property taxes are calculated differently, and renting, insuring and caring for a home you're not always in all raise questions worth answering before you write an offer.

Here's what to think through so the home fits how you'll actually use it.

Second Home or Investment Property? Your Lender Will Ask

To a mortgage lender, "second home" is a specific category that sits between a primary residence and an investment property. Lenders generally expect a second home to be a one-unit property you will personally occupy for part of the year, that is suitable for year-round use, and that you control -- not one locked into a rental pool or run by a management company that decides when you can stay there.

If your main goal is rental income, the lender will likely treat the purchase as an investment property. Investment loans typically call for a larger down payment and come with higher rates and stricter reserve requirements than second-home loans, which in turn tend to be somewhat more demanding than loans on a primary residence. Be upfront about your plans. You certify occupancy in writing, and misstating it is a serious matter.

Tarus began his career as a loan officer and mortgage broker, so he can help you understand how a lender is likely to view your plans before you apply. For an overview of loan types, see our guide to home loan options, and confirm the specifics with your lender.

Thinking About Renting It Out?

Many owners hope occasional rental income will help with carrying costs. Before you count on it, check three layers of rules:

  • The city or county. A number of cities in and around DFW regulate short-term rentals through zoning, registration or permits, and some restrict them in residential areas. Rules change, so confirm with the local planning office for the specific address.
  • The HOA or deed restrictions. Many associations set minimum lease terms or prohibit short-term rentals entirely. Request the governing documents early and read them during your option period, not after closing.
  • Taxes on short stays. Texas applies hotel occupancy tax to many short-term stays, and local occupancy taxes may apply too. The Texas Comptroller's website explains the state requirements.

Insuring a Home You Aren't Always In

A standard homeowners policy assumes someone lives in the house full time. A second home may need its own policy, and many policies limit coverage for certain losses if a home sits vacant for an extended period. If you plan to rent, ask about a landlord or short-term rental endorsement. Flood coverage is almost always a separate policy, which matters near lakes and rivers. Get quotes during your option period so the premium doesn't surprise you at closing.

Managing From a Distance

A burst pipe or a failed air conditioner is an annoyance when you live in the house and a much bigger problem when you're hours away. Before you buy, think through:

  • Who will check on the property after a storm or a hard freeze.
  • Whether a local property manager or caretaker makes sense, and what that service costs.
  • Smart thermostats, water-leak sensors and keyless locks that let you keep watch remotely.
  • A short list of reliable local contractors.

Texas Lake Properties Need Extra Homework

Lake homes come with their own checklist. Many Texas lakes are controlled by a federal agency, a river authority or a utility, and that entity may set rules for docks and shoreline use -- and may own land between a private lot and the water. Before you commit, find out:

  • Whether an existing dock or boathouse is permitted, and what it takes to repair or build one.
  • Where the property line falls relative to the shoreline, and whether any part of the lot is in a flood zone.
  • Whether the home uses a septic system or private well, and the condition of each.
  • How changing water levels could affect access to the water.

A current survey and specialized septic and well inspections are well worth the cost. Our guide to inspections, appraisal and closing covers the standard steps.

Taxes: The Homestead Exemption Stays Home

In Texas, the residence homestead exemption applies only to your principal residence. You can't claim it on a second home, so the tax bill on a vacation property is figured without the homestead savings and protections you may be used to. Our post on Texas property taxes and hidden homeownership costs explains how those bills come together.

Federal deductions for mortgage interest and property taxes on a second home may be available within IRS limits, and renting part of the year adds reporting rules that depend on how many days you use the home versus rent it. A CPA can explain how those rules apply to you.

Start Your Search

Browse listings, compare areas such as Tarrant County and Ellis County, and read our tips on choosing a DFW neighborhood. When you're ready to talk through financing, rental rules and how you'll use the property, contact Tarus and he'll help you find a second home that fits.