How To Afford Living In Two Homes (Solved!)

By thewriteDuffy •  Updated: 11/08/21 •  9 min read

Maybe you’re investing in a vacation home, or you’re a snowbird living in two countries (or even two continents) at different times of the year, or maybe you’re just temporarily living in your old home while you build or renovate your dream home. Whatever the case, affording to live in two homes (or more) can be tricky, but possible.

Buy a Second Home or Rent?

First of all, when considering a second home, it’s not always necessary to jump into a second mortgage, property taxes, etc. Renting may be a good option, especially if you’re only planning on having two houses for a short time.

The Pros and Cons of Buying a Second Home Over Renting

Buying

ProsCons
>Building equity on two homes>Maintenance Costs, and possibly homeowners association fees
> Steady monthly mortgage payments>Property taxes
> Building a family asset>Homeowners’ insurance
>No limits on the use of the property>The risk of home values dropping

Renting

ProsCons
>No maintenance costs, property taxes, homeowners’ insurance, or homeowners association fees>No equity
>Rent is usually (but not always) cheaper than a mortgage>Rent usually increases at the end of each lease term
>Easy to move>The landlord or management company can set limitations on your use of the property

Rental housing may also be a good idea if you haven’t lived where you’d like to have your second home yet.

If you live in a rental for a while and decide you don’t like the location, you can always walk away at the end of the lease period and try another place, or go back to just owning one home. 

Create an Investment Property

Affording a Vacation Home

If you are looking to build your real estate portfolio and have no interest in renting, using one or both of your homes as a part-time investment property can be the easiest way to afford to own two homes.

This works particularly well with vacation homes. If your second property is a lake or beach vacation home for your own enjoyment, you can still buy it as investment real estate. You’ll just need to use it as a vacation rental for a good portion of the year.

This is now very easy to do with sites like Airbnb for the majority of the year and then reserving it for yourself when you want to stay there. It really is the best of both worlds. You own it, but it is making you money and you can use it anytime it suits you.

The best thing about this option is the majority of expenses on your rental property should be tax-deductible. While you’ll definitely need to keep some funds aside to afford to handle any unexpected issues that come up, you’ll be able to deduct them from your rental income at the end of the year.

How To Fund Buying a Second Home

Financing a second home

Option 1: Cash

If you can manage to save enough, most financial experts agree that an all-cash purchase is the best way to pay for a second home or vacation home.

Of course, this option is also the least attainable. According to the National Association of Realtors (NAR), “Eighty-seven percent of recent buyers financed their home purchase. Those who financed their home purchase typically financed 88%.”

Luckily if you’re in the market to buy a second home, that usually means you already own a primary residence and have some equity to help buy your second home, so let’s review the other options.

Option 2: Apply for a Home Equity Loan

If you have substantial equity in your house, a home equity loan may be an option. Just note that after the great recession, lenders may be less willing to approve a home equity loan that drains too much equity from your primary residence.

Draining too much equity becomes a problem if home values decline. Banks and lenders assume that if you run into financial trouble, you’ll keep up with payments on your primary residence first.

To find out how much equity you have you can use a home equity calculator like this one.

Option 3: Use a Home line of credit (HLOC)

Another option is to combine your existing home equity with a home line of credit to finance a second home.

This option has several benefits:

One important note is that unlike a home equity loan or second mortgage that has a fixed interest rate, home lines of credit usually have variable interest rates.

To qualify for a line of credit, you will need a certain percentage of your existing home equity available. Talking to a bank or lender will be the best way to figure out if you qualify since it varies by location.

Option 4: Apply for a Conventional REal Estate Mortgage or Loan

A conventional loan for your second home is an option, but be prepared to make a larger down payment, pay a higher interest rate and meet tighter guidelines (credit score, and monthly debt-to-income ratio) than you’d need for a mortgage on your primary residence.

The minimum down payment for a second home is often 20%, but some lenders can require up to 35% for a second home.

Unfortunately, even if you plan to use your second house as an investment property, not all lenders will allow that rental income to be considered for the loan qualification.

Option 4: Get a CoNstruction Loan

A construction loan is another option if your second home (or first home for that matter) is:

Construction loans are shorter-term, higher interest rate mortgages that cover the cost of the build or renovation. The lender pays a construction loan in installments as building milestones are achieved. those milestones can vary, but here are some typical ones:

Once the home is complete, home construction loans are either converted to permanent mortgages or paid in full.

One important note is in many cases unless you’re a licensed contractor, you’ll need to hire one to build your home. Lenders will also look closely at the contractor involved in the building, so it’s critical to choose a reputable one. Your lender may also want to know your budget and cash flow projected for the project.

Construction loans often have higher interest rates than traditional mortgage rates, as these loans are more complex and carry a higher risk for the lender.

Additional Costs of Owning Two Homes

It’s important to note that owning two properties comes with expenses above and beyond the actual mortgage or loan payment and property costs. Here are some other things to consider:

Two Sets of Everything

Owning two properties means you will have two sets of bills and utilities, two sets of furniture and decor, and two sets of belongings. It can add up quite quickly.

Cost of Living

Cost of Living Considerations

The cost of living may also be vastly different between your two residences. Even between two cities close in proximity, prices for necessities like food, gas, and utilities can be vastly different and affect your day-to-day budget drastically.

With that said, frequent moving can cut down on impulse purchases for some folks. Each time you see something for your home you want, you’ll be able to ask yourself if you want it so badly that you’re willing to either live with it only a few months of the year or if you’re willing to move it back and forth between your two homes.

Frequent Travel / Moving Expenses

Unless your second home is very close to your primary residence, you’re also going to have the added travel and/or moving expenses each time you relocate to your other home.

Conclusion

Buying a second home is possible, though sometimes renting may be a better and more affordable option than buying.

If you do choose to opt for buying a second home, using it as a part-time investment property is a great option to make it affordable, especially for a vacation home.

As for affording the cost of purchasing, the second piece of real estate there are many options available including saving to pay it down in cash, a home equity loan, a home equity line of credit, a traditional mortgage, or a construction loan (if you’re building or doing a major renovation of the second home).

Living in two places, even on a small budget, is possible but does take a lot of work and planning.

I hope this article helps you on your way!

thewriteDuffy