There are many benefits to owning a second home. Many people like to know that they have a place to which they can escape the chaos and tension of their everyday lives. Other people buy a second home in a location they’ve always loved, or so they can explore a new region. Second homes can range from cabins in the mountains, to beach houses, to penthouses in another city. No matter what is motivating you to search for a home away from home, you should be prepared to do extensive research regarding second home mortgages and to hand over a large amount of money before you can enjoy the benefits of having a second home. Buying a second home can be a terrific investment if you execute it right, or it could be a costly mistake if it is done without much planning.

To state it simply from the beginning, it is harder to buy a second home than you might think. Interest rates and down payments are higher on second homes, and since lenders think that people are more like to be unable to keep up with their bills on a second home, they want to make it tough to acquire second home mortgages to begin with. Because of this, most people who are in the market for a second home are people who would not have a hard time affording one or keeping up with their second home mortgage. The market for second homes has expanded greatly in the recent years as many people, retiring baby boomers in particular, find themselves with extra money in their pockets, and want to spend their later years in desirable locations.

There are a few basic facts about buying a second home that are important to remember. The first thing you have to keep in mind is that fact that you will probably end up searching harder for a good second home mortgage than you did for your primary home mortgage. The lender will also want to make sure that you are fully capable of paying off two homes at the same time. Ideally if you are looking into buying a second home, your primary home is either paid off, or in the process of being paid for in a very stable mortgage. If you have any doubts about how you’ll be able to finance a second home, you might want to reassess your desire to purchase one.

If you already have a second home and are feeling somewhat strapped for cash, you always have the option of renting it out for a few weeks or months per year. This is how many people are able to pay off some their second home fees, while still being able to enjoy it themselves. Since it is unlikely that you will be using your second home at all times, it makes sense to be able to make a little money off it yourself. If the house is in a desirable location, you can often make a decent amount off just a few weeks of rent.

Most importantly, make sure you purchase your second home in a place that you can see yourself being happy in for many years. This is not a small investment, and vacation destinations often go through times of prosperity as well as decline. If you want to buy a vacation home just to be in a trendy area for a little while, it would probably be a better idea to rent in the area from time to time, and invest the money you save elsewhere.

Mortgage lenders make no bones about it: They are tougher on second-home loan applications than on primary-home loans. Why? Because the finances of a second-home buyer are, by definition, stretched thinner. The result is that second-home rates traditionally run one-quarter to one-half point higher than those for first residences. Ditto for origination points on vacation-home loans.

That said, however, the current environment for second-home lending is about as lenient as it has been in years. Banks are healthy again and a rebounding real estate market has them all rushing into the market at once. The result: heightened competition -- especially in the second-home arena. "The typical profile of a second-home owner is someone more affluent than a single-home buyer," says David Totaro, chief marketing officer for Dime Savings Bank of New York. "That's the type of person we want to do business with."

With interest rates still at relatively low levels, many lenders will encourage you to take out a home-equity line of credit on your primary residence to fund all or part of your second-home purchase. Watch your step here. Most home-equity lines of credit float a point or two higher than the prime rate, so you could end up repaying this piece at a much higher interest rate than if you had simply taken a mortgage for the entire amount. Plus, unlike mortgage interest, which is deductible on up to $1 million of debt on your first and second homes combined, the home-equity cap is $100,000. (You get a break on $1.1 million total.)

Whatever you do, don't bank on starting with a home-equity loan and taking out a mortgage at a later date. A little-known IRS rule states that you have just 90 days from purchase to secure a mortgage against a principal or vacation residence, notes New York CPA Paul Kamke. Do it later and you can't deduct it at all.

Lenders are still sticky when it comes to renting out your second home. Some lenders won't even write those kinds of loans; they have a hard time selling mortgages on investment property in the secondary market. If you find a lender that will, expect it to scrutinize you more carefully than if you were not a landlord.

At a minimum it will want to see proof that you're actually going to generate a decent cash flow. Often, the lender will ask for a cash flow statement for a property showing its rental history. In condo communities, management companies often provide them. If one isn't available, you'll need to get a second appraisal, comparing the rents and occupancy rates at similar homes. This will run an extra $300 to $600.

And don't count on your bank to take all of a home's estimated rental income into consideration. Even for a property with a long rental history, most lenders will only consider 75% to 80% of it. Some even take 75% after netting out your costs.