Factors to Consider When Buying a Second Home as a Physician

If you have a solid emergency fund, have begun saving for retirement, and have paid off all your debts, you may be in a good position to buy a second home.

Still, just because you can do it doesn’t mean you always should.

To make a decision, you will need to look at the pros and cons, financial liabilities, and maintenance headaches that come with purchasing a second home.

Why You Should Get a Second Home as a Physician

Here are three reasons why it might be a good idea to invest in a second home:

1. Diversify Your Investments

A second home moves you beyond the usual mix of stocks, bonds, and retirement accounts.

Real estate also tends to appreciate over time, which means you get a long-term asset that isn’t as vulnerable to market swings.

Aside from that, your second home acts as a buy-and-hold investment property—where you can sell it for a profit down the line and even generate rental income over time.

2. Potential to Move There

Purchasing a second home can prepare you for moving to another area.

Owning a property in another location removes the uncertainty of finding a home, scouting the neighborhood, and understanding the taxes after moving to that location later.

This way, an eventual transition will be easier.

It’s also a great way to gauge states where you can pay lower taxes: use the second home as your home base for working on medical licensure, and then move to that state afterward.

3. Reduce Commute Time

If you have multiple practice locations, such as if you’re a surgeon with several hospital affiliations or work locum tenens for different facilities, you may have to spend hours commuting every week.

A second home near your workplace cuts down on travel time. You can also save on hotel bills and long drives.

Challenges of Buying a Second Home as a Physician

While buying a second home comes with its pros, it also has major cons, especially if your money is already tied up.

Let’s look at a few:

High upfront and ongoing costs

You need to pay a hefty down payment, mortgage payment, property taxes, insurance, and maintenance fees.

Costly maintenance

As a physician, you typically won’t have much time to manage your second home.

You might need to hire people to take care of your home, which means additional expenses.

Complicated financing

Lenders have stricter requirements for second homes, especially if you’re buying one as an investment.

This means you’ll run into higher interest rates and larger down payments when looking for loans.

Rental housing market risks

If you’re buying your second home in a vacation spot and thinking of renting, you may likely only receive income seasonally.

Plus, it can be difficult to find renters, so you should be prepared for the possibility of paying your mortgage without rent income.

Potential for limited use

Your demanding work schedule may limit how often you can visit your second home.

If you travel too frequently, your property could sit vacant for a long period, which will make it expensive to maintain.

Fine print

If you’re purchasing a vacation home at a beach or near a ski resort, you’ll most likely get a condominium.

Getting a loan for these can be difficult if the condo development you’re investing in is more than 15% behind on their association dues.

If you do get a loan, your lender will charge higher interest.

When Should You Buy a Second Home?

Having the money to buy a second house doesn’t mean you always should do it.

As a physician, you have limited time, so investing in a home that would demand your attention can be a bad move for your career and your wallet.

A second home only makes sense when:

1. You’re looking to become a real estate investor. If you’ve decided to manage properties and are ready to dedicate attention to them, you should buy a second home.
2. You find yourself going back to one vacation spot. If you go to the same vacation spot every year, it may be a good idea to buy a home there for convenience.
3. Your commute is very long. If you work locum tenens in rural areas and expect to be there for a few years, a place closer to work—like an apartment or condo—might be useful.
4. You’re preparing for retirement. If you already know where you want to live long-term, buying a second home ahead of time can lock in a property at today’s prices. This gives you time to get used to the area. If you want to sell it later, you can do so at a profit.
5. You want to help a family member. If you’re looking to help your children or parents move closer to your primary home, a second home would be a good idea. Just make sure you’re comfortable with your current expenses before taking on more.

Aspects to Consider Before Buying a Second Home for Physicians

Let’s now look at five aspects you need to consider before buying a second home as a physician:

1. Financial Impact

Owning a second home means you take on double the financial responsibility. If you’re putting in new AC units in one house and a pipe decides to burst in your second, your bills will explode astronomically.

You’ll also pay twice your:

• Mortgage payments (which may come with higher interest rates)
• Property taxes and insurance (this will depend on your location)
• Maintenance
• Repairs
• Homeowners Association (HOA) fees

You’ll also need to pay rental management fees if you rent your second home.

Before that, you’ll also need to factor in closing costs, which you’re likely to contribute to when closing on your second home. These include:

• Taxes
• Insurance
• Commissions
• Appraisal fees
• Title searches

All of these costs can add up and leave you penny-pinching if you haven’t saved enough money beforehand.

Before committing to a second home, ask yourself these questions:

• Am I saving at least 15% of my income?
• Do I have an emergency fund that will cover all maintenance costs for at least six months?
• Do I have a high-interest loan?

Houses can be fickle and break down on you no matter if they’re new or old.

If you haven’t saved enough money, you might want to think about getting a second home later than initially planned.

2. Financing Options

Lenders consider second homes to be a higher risk, which means higher interest rates and stricter financial qualifications.

You also can’t use FHA-insured loans to buy second homes, so you need to make larger down payments.

You’ll also need a lower debt-to-income ratio (DTI), which means zero—or very low—student loan debt or a low mortgage balance on your primary residence.

This limits your pool of financing options to the following:

Cash

According to the National Association of Realtors (NAR), 33% of buyerspaid cash for their second property purchases.

This indicates that cash may be the easiest method for financing your second home.

Home Equity Loans (HELOC)

If you have a lot of equity in your primary home, you can borrow against it to finance your second home.

This will give you a lump sum that you can use for investing.

Still, you might find very few lenders willing to approve this loan, because it can drain too much equity from your primary residence and cause the home value to decline.

Conventional Loans

A conventional home mortgage might be a good option if you can’t go for HELOCs and don’t have enough cash to pay upfront.

But be prepared to pay a higher down payment and meet strict DTI and credit score requirements.

You’ll need to pay at least 10-20% in down payment and have a credit score higher than 725-750 to qualify for these loans on a second home.

You’ll also need to show that you have enough cash reserves to handle payments on both homes, which means you need to already be saving in advance.

Aside from that, you won’t be able to use rental income to fully offset your DTI ratio in most cases.

Some lenders won’t count projected rental earnings at all, while others may consider a portion—usually 50-70%—and require proof of consistent rental history before factoring this into your loan application.

Physician Loans

A physician loan is usually intended for primary residence purchases.

But if you’re moving to another state for a new job, you may be able to get a doctor’s loan for your new property, which would essentially be your primary residence.

If you’re planning to use a physician loan for a second home that will primarily be a rental investment or a vacation property, you might have a difficult time finding a bank to give you a loan.

You may also have to pay a higher down payment: around 15-25%.

3. Second Home Taxes

If your second home is a vacation-only residence—which means you rent it out no more than 14 days per year—you’ll be able to claim the mortgage interest tax deduction but only on mortgages of $750,000 or less total of all your homes.

However, if you rent it out more than 14 days a year, your home will be classified as a rental property.

While you won’t be able to deduct mortgage interest, you can deduct maintenance expenses and claim losses on your rental (when spending exceeds income) using Schedule E of Form 1040.

4. Renting Regulations

If you’re planning to rent out your second home to get back some money, look at the zoning regulations of the area before buying—because you might not be able to do this in every community.

In particular, pay attention to what your condo and HOA bylaws say for renters or Airbnb rentals.

These can be very strict in areas like NYC, and you may not be able to rent for longer periods at all in some places.

5. Commitment to One Location

If you or your family love the place you travel to every year—like a cabin in the mountains, a house by the ocean, or a cottage in rural Maryland—buying a second home there can make sense, especially if you have kids.

But if you like to travel to different places every few years, tying yourself down to one place might reduce your enjoyment of the place.

And over time, traveling to that place may feel more like a chore than a vacation.

Think carefully about whether you can stick to the same stock for a few years before settling on a second home there.

Access Loans That Help You Expand Your Real Estate Portfolio With Physicians Thrive

Buying a second home as a physician can be a valuable investment.

You can turn it into an income source, a vacation home, or a buy-and-hold investment to sell later.

But it also comes with huge costs—closing, maintenance, mortgage, and taxes.

Financing is often the biggest issue because lenders perceive second-home buyers as more risky. This is where we come in.

At Physicians Thrive, we help doctors find second-home loans that work in their favor.

We work with local banks, credit unions, and national lenders to find you loans that are low-interest and low-obligation, so you can pay your way through your second home.

Ready to learn how we can help you purchase the second home you’re looking at now? Reach out today!