Can you manage two mortgages? Find out now

Can I afford two mortgages calculator? The short answer is yes, but it depends on your financial situation. A general rule is that your total monthly housing costs shouldn’t exceed 28% of your gross monthly income. For instance, if you earn $8,000 a month, your combined mortgage payments shouldn’t go over $2,240. You also need to consider other debts; your total debt payments should ideally stay below 36% of your income, which means you need to crunch some numbers to see if you can handle two mortgages.

Understanding the Basics of Mortgage Affordability

When you think about taking on two mortgages, it’s essential to understand how lenders assess your affordability. They look at your income, existing debts, credit score and other financial obligations.

Debt-to-Income Ratio (DTI)

A significant factor in determining if you can afford two mortgages is your debt-to-income ratio. This ratio measures how much of your income goes toward paying debts. To calculate your DTI, divide your monthly debt payments by your gross monthly income and multiply by 100 to get a percentage. Generally, lenders prefer a DTI of 36% or less.

For example, if you make $6,000 a month and have $1,800 in monthly debts (including both mortgages), your DTI would be 30%. That’s a healthy ratio, suggesting you might afford two mortgages.

Credit Score Impact

Your credit score also plays a vital role. A higher score usually means better loan terms, which can lower your monthly payments. If you have a score above 740, you’re likely to get favorable rates. On the flip side, a score below 620 could limit your options and increase your rates, making two mortgages harder to manage.

Real-World Scenarios: Can You Afford Two Mortgages?

To help clarify this, let’s look at some real-world examples.

Example 1: Sarah, the Teacher in Denver

Sarah is a 35-year-old teacher in Denver. She makes $80,000 a year, which translates to about $6,667 monthly. She has a current mortgage of $1,500 for her home.

1. Current Debt Payments:

• Mortgage: $1,500
• Other debts (car payment, credit card): $500
• Total: $2,000

2. Calculating DTI:

• Total monthly income: $6,667
• DTI = ($2,000 / $6,667) x 100 = 30%

Now, let’s say Sarah wants to buy a rental property with a mortgage of $1,200. Here’s how it works out:

• New total mortgage payments: $1,500 + $1,200 = $2,700
• New DTI = ($2,700 / $6,667) x 100 = 40%

Sarah’s DTI is above the preferred 36%, which might make lenders hesitant—even though she can technically afford the payments.

Example 2: Mark and Julie, the Newlyweds

Mark and Julie are newlyweds in their late 20s and they both work. Mark makes $70,000 a year, and Julie brings in $60,000. Their combined income is $10,833 monthly.

1. Current Debt Payments:

• Current mortgage: $1,800
• Car loan: $400
• Student loans: $300
• Total: $2,500

2. Calculating DTI:

• DTI = ($2,500 / $10,833) x 100 = 23%

They’re considering buying a second home for $300,000, with a monthly payment of $1,800.

• New total mortgage payments: $1,800 + $1,800 = $3,600
• New DTI = ($3,600 / $10,833) x 100 = 33%

Now they’re within the acceptable range, making it easier for them to afford two mortgages.

Factors to Consider Before Taking on Two Mortgages

Income Stability

Before committing to two mortgages, consider the stability of your income. If you’re a freelancer or in a commission-based role, fluctuations in earnings can make it risky to take on additional debt.

Additional Costs of Homeownership

Owning multiple properties means you’ll face other expenses. Property taxes, insurance, maintenance and potential vacancies all add to your financial responsibilities. Make sure you budget for these costs before making any decisions.

Impact on Lifestyle

Buying a second home could significantly change your lifestyle. You might have to cut back on non-essential spending or forgo vacations to keep up with the payments. Assess whether you’re willing to adjust your lifestyle for the sake of owning two properties.

Tools to Help You Assess Affordability

Mortgage Calculators

There are plenty of online mortgage calculators that help you estimate your monthly payments based on home price, down payment and interest rate. These tools can provide a quick overview of what two mortgages might look like.

Financial Advisors

Working with a financial advisor can be beneficial. They can help you assess your financial health and guide you through the complexities of affording multiple properties. They can also provide personalized advice based on your unique situation.

FAQs About Two Mortgages

1. Can I get a mortgage if I already have one?

Yes, you can get a second mortgage, but lenders will review your financial situation. Your DTI, credit score and employment history will all be scrutinized.

2. What happens if I can’t afford both mortgages?

If you can’t afford both mortgages, you risk foreclosure on one or both properties. It’s wise to have a contingency plan, such as a rental income stream or savings to cover payments.

3. How much should my combined mortgage payments be?

A common guideline is that your total mortgage payments shouldn’t exceed 28% of your gross monthly income. For example, if you earn $8,000 a month, your combined payments shouldn’t go over $2,240.

4. Is it better to rent out the second home?

Renting out the second home can help cover the mortgage payments. However, owning rental property comes with its own set of responsibilities and costs, including property management and potential vacancies.

5. Can I use the income from a rental property to qualify for a second mortgage?

Yes, you can use projected rental income to help qualify for a second mortgage. However, most lenders will require you to show a history of income from that property or have a signed lease agreement.

Conclusion: Making the Right Choice

Affording two mortgages is possible, but it requires careful planning and assessment of your financial health. Start by calculating your DTI and understanding your budget. Consider your income stability and be realistic about how much you can afford.

If you’re serious about buying a second property, consult with a financial advisor or mortgage professional to ensure you’re making informed decisions. With the right planning, owning multiple properties can be a rewarding investment strategy. So, take your time, crunch those numbers and make sure you’re ready for the responsibilities that come with two mortgages.

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