How to Know When It’s Time to Purchase a Second Home


Deciding when to purchase a second home can be difficult, but it’s an exciting process, as well. By understanding a few key personal finance metrics and being able to ask yourself the tough questions, it’s easy to decide whether purchasing a second home is right for you and, if so, when you should take the leap.

How to Decide When to Purchase a Second Home

Deciding when to purchase a second home comes down to your personal preferences, and your personal finances. To purchase a second home intelligently, you’ll need to fit the following criteria:

1. You have plenty of spare income or savings

While you don’t need to be a multi-millionaire to purchase a second home, anyone who is going to issue a mortgage loan for a second home wants to see that you have enough in the bank to accommodate for several months of payments on both homes.

In addition to the requirement that you have plenty in the bank, you’ll also be required to pay more for the down payment on your second home than you did on your first. In fact, it’s not uncommon for the second payment amount to reach up to 30% or more.

With this in mind, you’ll need to be sure that you’re financially equipped to handle the expense of a second home without getting into trouble.

2. Your debt-to-income ratio is low

For you to apply for and receive a mortgage for a second home, you’ll need to have a relatively low debt-to-income ratio. Ideally, mortgage lenders want to see it between 36-42%, but definitely no higher. If your ratio is currently higher than this, it may be wise to put off buying a second home for long enough to get the ratio down and increase your savings buffer.

3. You’ll need to be prepared to make larger monthly payments

Even if you’re not aiming to be a real estate tycoon, purchasing a second home makes you an “investor” in the eyes of the bank, and since investors are typically viewed as risky borrowers, banks often make them pay higher interest rates.

With this in mind, you’ll need to be prepared to pay a large monthly payment if you intend to purchase a second home.

4. If you intend to flip the home, you’ll need to be prepared for additional expenses

The old saying “you have to spend money to make money” is true when it comes to flipping homes. To get the largest possible purchase price from a home, you’ll need to put plenty of money into it, and do it quickly enough to make the entire experience profitable.

With this in mind, purchasing a second home may not be a great idea unless you have the funds, time, and energy to spare.

Taking Your Time When Buying a Second Home

While purchasing a second home is appealing to many, it’s not something to undertake lightly. Between the large financial commitment and the pressing constraints relating to down payment and the like, this is a move that’s best considered fully before you commit.