6 Signs You Can Afford to Buy a Second Home

Posted by Alex Narodny on Wednesday, November 16th, 2022 at 10:11am

By, Lisa Roberts

Are you unsure whether you can afford to buy a second home? A couple of signs will quickly tell you that you are financially ready and can afford it. Buying a second home is a big financial responsibility, and you must consider many things before you sign any papers. A good credit score, paying the utilities, and having an emergency fund are just some of the many things you need to consider before searching for your second home.

1.    You won’t have to rely on renting your second home out

To help reduce the costs of owning a second home, most people look into renting it out while they’re not using it. However, renting out your second home comes with specific responsibilities you need to consider first. When you rent your home out, you need to figure out the logistics of moving your things out of your second home every time you rent it out to someone. Another disadvantage is finding the perfect tenants to rent your house to isn’t always easy. That is especially true when you want to rent it out only for one part of the year. There are also hidden costs to renting your home out, such as changing your locks whenever you change tenants, regular maintenance, and potentially having to fix the damage your tenants may have caused. Another thing to consider is that you might not be allowed to rent your second home. Always check your paperwork carefully before making a big decision like this one.

Calculate the moving costs for your second home

2.    You can afford the upkeep and monthly costs of owning a home

Determining whether you can afford a second home goes beyond just paying for the mortgage. It is critical to consider the taxes, maintenance, and bills for your new second home before you buy it. When you plan out your finances like this, you won’t have to sell your home because you can’t afford the bills. Another thing people fail to consider when buying a home is the cost of moving. Even though this is your second home, you will want to have some of your belongings with you. When calculating the moving costs, think about the details to get the correct sum. Take into account packing supplies, hiring a professional moving company, professional cleaning of your second home, etc. All of these expenses come with buying a second home, so it’s best to prepare ahead of time.

3.    You can afford a second mortgage

There are certain things everyone should know before buying a home. Buying a second home shouldn’t cost you your retirement or emergency savings. If you have to rely on taking money out of these funds, it’s a clear sign you can’t afford to have a second home. Having a second mortgage for your second home is possible, even if you already have one for your first home. With second homes, you will most likely have to pay a larger down payment. Before making any decisions about buying a second home, think about what percentage of the down payment you can afford. Another thing that you should consider before you get the mortgage is your credit score. A good credit score is an excellent sign of whether you can afford a second home.

You can afford to buy a second home if you can afford a second mortgage

4.    You are prepared for financial emergencies

When calculating the cost of buying a second home, always leave a little wiggle room to manage any emergency. That can range from unexpectedly lower monthly incomes to emergency maintenance of the second home. Experts from mastermovingguide.com suggest you plan your moving budget carefully to save money when moving things into your second home. Natural disasters can be one of the worst unexpected things, so you can prepare for the unexpected by buying insurance. It can be a big help in preventing all sorts of unforeseen costs. Insurance might make the cost of purchasing a second home higher. However, it’s the one step you shouldn’t skip. It’s always better to prepare for these situations than risk losing your savings.

5.    Your monthly income is steady

Paying off your second home every month can be difficult if you don’t have a steady monthly income. You risk not having enough to pay your mortgage and necessities without this. Another situation to avoid is spending most of your monthly payment on the mortgage.  A mortgage is a long-term financial commitment. Suppose you are unsure whether you can afford it every month because it’s a sign you can’t afford it on an unsteady income. You know you aren’t in for surprises when you have a steady income. You can get a mortgage and buy your second home, knowing you can pay it off without compromising your savings.

Buying a second home can become a reality when carefully planning your finances.

6.    You can afford to buy a second home with an excellent debt-to-income ratio

Last but not least, take into account your debt-to-income ratio. Does buying a second home mean spending most of your income on a second mortgage? Buying a second home isn’t worth it if you make it more difficult with your daily life. You don’t want to pay the mortgage to use up most of your monthly income. Work with your realtor to find a price for a second home that will not significantly impact your daily life. If your credit score or down payment amount isn’t enough, you might be able to make up for it when applying for a mortgage with an excellent debt-to-income ratio. It shows that you are great at managing your finances and can handle the additional cost of having a second mortgage.

In summary

The answer is clear if these signs you can afford to buy a second home apply to you. With a steady monthly income and an emergency savings fund, your second home can go from a dream to a reality. It’s all about carefully calculating the cost of buying a second home and being ready for all the expenses. Your hard work will pay off once you receive the keys to your new second home.

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