Can I Afford a Second House?

The housing market is slipping, meaning that you can buy cheap, but you may not be able to get the true worth of your current home out of a sale. A good option, if you are willing to consider it, is keeping your current house as a rental. Another great option is buying a house to “flip”, meaning that you buy a perfectly good house, turn it into a better house through remodeling, fresh paint, and landscaping as necessary, and resell it at a higher rate. Both of these can turn you a great profit, even in a low market. But can you afford to do either?

We’d like to help you answer that question! Every area is different, and a lot of money in Texas might boil down to a condo in some areas of California, so how do you know how much house you can even afford? One of the first things that you should do is look at your equity. You don’t need an appraisal yet, but do estimate the current value of your home and look at what you estimate your equity to be. The ideal amount is enough for closing costs, which you can find with the aid of a calculator on many lenders’ sites, enough for ten to twenty percent of the cost of the loan for a down payment, and a little bit extra to cover emergencies like extra closing costs being tacked on or the dryer falling off the moving truck. Don’t forget to keep some cash on hand for moving if you plan to use a professional company!

So you have enough equity? Congratulations! Sounds like you can afford to at least go house hunting. Call your favorite local agent and see what he or she thinks that you can afford for your purposes. Specify nice fixer-uppers if you plan to fix up a house to resell, or make your personal needs known if you are moving to a better place. If you actually want to buy a house to rent out, let them know about that as well. The agent will help guide you to the best house for your needs.

Once you have a house in mind, you will need to figure out if you can actually afford the mortgages on both houses. You may be able to afford the house in question at first, but that will do you no good if you cannot afford to pay for it. If you are planning to “flip” a house, then you will want to have a timeline and a budget set aside to work with, and your home equity loan or a personal loan of some kind should cover the costs of the materials as well as the mortgage while you are fixing the house up. Don’t forget that unless you have a very flexible kind of work schedule, your income will also be little to nothing during this time.

The lender has okayed you for a mortgage, you have shown that you can pay them, and maybe you even have a renter lined up. Time to purchase the house and get down to business. Good for you for realizing a real American dream… twice!