When you buy a second home, you can expect many of the same closing costs that come with buying a primary residence.
These can include lender charges, an appraisal, title services, recording fees, prepaid property taxes and homeowners insurance. Your exact costs depend on the property, loan, lender, location and how you choose to structure the mortgage.
You can use our cash to close calculator to explore different scenarios for how much you'll need to buy a home.
Second Home Closing Costs Basics
| Cost |
What It Means for You |
| Lender charges |
Can include origination, underwriting or other charges for making the mortgage. |
| Discount points |
Optional upfront costs that may be paid in exchange for a lower mortgage rate. |
| Appraisal |
Pays for the valuation used to support the property's value for the mortgage. |
| Title and settlement costs |
Can include title search, title insurance and settlement or closing services. |
| Government charges |
Can include recording fees and applicable transfer or other government charges. |
| Prepaid expenses |
Can include homeowners insurance, prepaid interest and property taxes. |
| Down payment |
Part of your cash to close, but not considered a closing cost. |
| Financial reserves |
Assets you may need to keep available after closing rather than spend at closing. |
The CFPB's Loan Estimate guide separates estimated closing costs from your estimated cash to close. That distinction is especially useful when buying a second home because your down payment and reserve requirements can add substantially to the amount of money you need available.
Are Closing Costs Higher on a Second Home?
Not necessarily. There is no rule that says closing costs on a second home must be a fixed percentage higher than closing costs on a primary residence.
Many of the underlying costs are the same types of expenses you would see on another home purchase, including the appraisal, title services, lender fees and government charges.
However, second-home financing can be priced differently from primary-residence financing. Fannie Mae applies additional loan-level price adjustments to second-home mortgages, and that pricing can affect the rate, points or lender credits available with the loan.
That does not mean the additional pricing adjustment simply appears as a line item labeled “second-home fee” on your closing documents. How the cost is reflected depends on the loan offer and lender pricing.
The broader requirements for a second-home mortgage can also affect how much money you need available even when they are not technically closing costs.
What Lender Fees Can You Pay?
Your lender can charge upfront fees associated with originating and processing the mortgage.
The CFPB notes that lender charges may be described as origination, application, underwriting, processing or administrative fees. Different lenders can label their charges differently, so the total cost is generally more useful than comparing fee names alone.
Your Loan Estimate separates these loan costs so you can compare offers.
If two lenders quote similar interest rates but one has substantially higher origination charges, the lower-rate-looking option is not necessarily cheaper overall.
How Do Discount Points Affect Second Home Closing Costs?
Discount points are upfront charges you can pay in exchange for a lower mortgage rate.
One point equals 1% of the loan amount. For example, one point on a $300,000 mortgage costs $3,000.
The amount by which paying that point changes your interest rate is not fixed. It depends on the lender and market conditions.
Points can be especially relevant when comparing second-home loans because occupancy itself can affect conventional mortgage pricing. You may receive different combinations of rate and upfront cost depending on how much you choose to pay at closing.
That makes it useful to compare both the upfront costs and the mortgage rate offered on your second home instead of evaluating either number in isolation.
What Is a Lender Credit?
A lender credit works in the opposite direction from discount points. Instead of paying more upfront to reduce your rate, you may accept a higher rate in exchange for a lender credit that offsets some closing costs.
The CFPB explains that lender credits can reduce what you pay upfront, but they are typically connected to a higher interest rate.
This means a loan advertised with very low closing costs is not necessarily the least expensive option over time.
When comparing second-home mortgages, check whether one quote includes points or lender credits before deciding that its rate or closing costs are better.
How Much Does the Appraisal Cost?
An appraisal is commonly required when financing a second-home purchase. The appraiser provides an opinion of the property's value that the lender can use when evaluating the loan.
The actual appraisal fee depends on the property, location, complexity of the assignment and appraisal provider. There is no single nationwide appraisal price that applies to every second-home purchase.
Properties in remote areas, unusual homes or transactions requiring additional valuation work can cost differently from a straightforward appraisal of a typical property.
The appraisal appears among the loan-related services on your Loan Estimate.
What Title and Government Costs Can Apply?
A second-home purchase can involve title, settlement and government charges similar to another real estate transaction.
Depending on where you buy, these can include:
- Title search costs
- Lender's title insurance
- Owner's title insurance if you choose or are required to purchase it
- Settlement or closing-agent fees
- Recording charges
- Transfer or other government taxes and fees
These costs vary significantly by state and local market, so a national percentage is not a reliable way to estimate them.
Your Loan Estimate identifies which services you may be able to shop for. Comparing providers can reduce some third-party closing expenses.
What Taxes and Insurance Do You Pay at Closing?
Some of the money due at closing is for expenses associated with owning the home rather than fees charged to make the loan.
These are commonly listed as prepaids or initial escrow payments.
Homeowners Insurance
You may need to pay homeowners insurance premiums in advance at closing. The cost depends on the home, coverage, insurer and location.
A second home's insurance needs can also differ depending on how frequently it is occupied and whether you plan to rent it. Mortgage eligibility and insurance coverage are separate issues, so make sure the policy accurately reflects how the property will be used.
Property Taxes
You may need to pay or reimburse property taxes as part of the closing settlement, and the lender may collect money to establish an escrow account when applicable.
Property taxes depend on the jurisdiction and property. They should not be treated as a fixed percentage that applies to second homes nationwide.
Prepaid Interest
You can also owe interest covering the period between your closing date and the start of your first full mortgage payment period.
Because the amount depends partly on the closing date, prepaid interest can vary even between otherwise identical loans.
Does PMI Apply to a Second Home?
It can. If you put less than 20% down on a conventional second-home mortgage, you will typically need private mortgage insurance, or PMI.
You may be able to buy an eligible one-unit second home with as little as 10% down under Fannie Mae's standard guidelines. That lower down payment reduces the amount of cash you need upfront but generally means PMI will be part of the mortgage.
Depending on the mortgage-insurance structure, PMI can affect your monthly payment and, in some situations, upfront costs.
This is one reason the amount you put down on a second home affects more than just your initial loan balance. Moving from 10% to 20% down generally eliminates the need for borrower-paid PMI, although it requires considerably more cash upfront.
Reserves Are Not Closing Costs
One of the easiest costs to misunderstand when buying a second home is the reserve requirement.
Reserves are not money you pay to the lender, seller or closing company. They are eligible assets you need to have available after the transaction is complete.
For a second-home transaction run through Fannie Mae's Desktop Underwriter, Fannie Mae generally requires at least two months of reserves. More can be required when you own other financed properties or based on the DU findings.
If your second home's monthly housing payment is $3,000, two months of reserves would equal $6,000.
That $6,000 generally needs to remain available rather than being spent at closing. The full reserve requirement for a second home can therefore push the assets you need well above the amount shown as closing costs.
How Much Cash Do You Need to Buy a Second Home?
Your total cash requirement can include several different buckets of money:
- Down payment
- Loan and third-party closing costs
- Prepaid expenses
- Any discount points you choose to pay
- Required financial reserves
Only some of those amounts are technically closing costs.
For example, suppose you buy a $400,000 second home with 10% down. The $40,000 down payment is part of your cash to close, but it is not part of your closing-cost total. You would then add applicable lender fees, appraisal and title charges, prepaids and other transaction costs.
If your qualifying monthly housing payment were $2,500, you could also need at least $5,000 in eligible reserves after closing.
This is why planning around a single “closing cost percentage” can underestimate how much money you actually need.
What Is the Difference Between Closing Costs and Cash to Close?
Closing costs and cash to close are not interchangeable terms.
The CFPB explains that closing costs are the upfront costs associated with obtaining the mortgage and transferring the property. Cash to close is the estimated amount you actually need to bring to closing.
Your cash to close generally accounts for your down payment and closing costs, then adjusts for amounts such as deposits you already paid, seller credits and other applicable credits or adjustments.
Financial reserves are different again because they generally need to remain available after closing instead of being brought to the closing table.
| Term |
What It Means |
| Closing costs |
Upfront mortgage and transaction costs such as lender fees, appraisal, title charges and prepaids. |
| Cash to close |
The estimated amount you need to bring to closing after the applicable costs, down payment, credits and other adjustments are combined. |
| Reserves |
Eligible assets that generally remain available after closing. |
Does Having Another Mortgage Increase Your Closing Costs?
Having a mortgage on your primary residence does not automatically add a specific closing fee to the second-home transaction.
It can affect qualification, however. Your existing housing payment generally remains part of your recurring debts, and you may need additional reserves depending on how many financed properties you own.
If you borrow against your current home's equity to fund the new purchase, a HELOC, home equity loan or cash-out refinance can also create its own financing costs and monthly payment.
The financial picture when buying a second home while keeping your existing mortgage therefore extends beyond the closing costs on the new property alone.
How to Compare Second Home Loan Estimates
A Loan Estimate makes it easier to compare mortgage offers using the same basic categories.
The CFPB recommends paying particular attention to costs the lender can control, including origination charges, certain required services and lender credits.
When comparing second-home offers, look at:
- Interest rate
- Discount points
- Origination charges
- Lender credits
- Monthly PMI, if applicable
- Total loan costs
- Estimated cash to close
Taxes and insurance can differ between estimates for reasons unrelated to the lender, so those amounts should not be used by themselves to decide which mortgage has better pricing.
It also helps to compare offers with the same down payment, loan term and rate-lock assumptions. Otherwise, one lender may appear cheaper simply because the quote uses a different loan structure.
The Bottom Line
Second-home closing costs can include lender charges, points, appraisal and title costs, government fees, prepaid taxes, homeowners insurance and other expenses associated with completing the purchase.
There is no universal second-home closing-cost percentage. Your actual costs depend on your mortgage, property, location, lender and the rate-and-points combination you choose.
Most importantly, closing costs are only part of the money you need. Your down payment is added to your cash-to-close calculation, while required financial reserves generally need to remain available after the purchase is complete.
FAQ
How Much Are Closing Costs on a Second Home?
There is no fixed closing-cost percentage that applies to every second home. Your costs depend on the mortgage, lender, property, location, title and settlement charges, taxes, insurance and any points you choose to pay.
Are Closing Costs Higher on a Second Home?
Not automatically. Many of the same types of closing expenses apply to primary and second homes. Second-home mortgage pricing can differ from primary-residence pricing, however, which can affect the interest rate, points or lender credits available with the loan.
Is the Down Payment Included in Closing Costs?
No. Your down payment is separate from closing costs. Both can affect how much cash you need to bring to closing, along with credits, deposits and other transaction adjustments.
Do You Need Reserves in Addition to Second Home Closing Costs?
Generally, yes. Fannie Mae typically requires at least two months of reserves for a second-home transaction run through Desktop Underwriter. Those assets generally need to remain available after closing and are separate from your down payment and closing costs.
Can You Reduce Second Home Closing Costs With Lender Credits?
Potentially. A lender credit can offset some upfront closing costs, but it is typically provided in exchange for a higher mortgage rate. Compare both the upfront savings and the longer-term cost of the higher rate before deciding between different pricing options.
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