The prospect of purchasing your next home can be exciting – another place to make your own, visit on your own timeline and make memories with family. If you’ve found a place you love and are considering putting down part-time roots, first consider key factors like maintenance and usage. As you already know, there’s a lot that goes into homeownership, and it’s crucial to make sure you’re prepared before you take the leap.

Here’s what you need to know about adding another home to your real estate portfolio and determining when may be the right time to do so.

What might the process look like this time around?

As a homeowner, you’ve been around the block and probably have a good idea of what goes into the homebuying process.

If you’ve bought with a mortgage before, you’ll be familiar with steps like submitting your down payment, awaiting loan processing and underwriting, and paying closing costs. If you have purchased homes in cash, you’ll have gone through obtaining proof of funds and weighing contingencies like a home inspection and appraisal before signing the purchase agreement. Whichever route you choose for your next home, those same steps will likely apply.

If you do go the mortgage route, some criteria may look a bit different than mortgaging a primary residence.

General qualifications for an additional mortgage

When adding on another mortgage, lenders take the same financials into account – namely your credit score, down payment and debt-to-income (DTI) ratio. However, the standards are higher for additional homes because the chances of default potentially increase.

To finance a another home, you’ll need:

• A higher down payment: While some people are able to put just a 5% down payment on their primary residence, you’ll need at least 10% upfront to buy additional residences, and it’s advisable to go higher.¹
• A higher credit score: While a score in the “good” range (670 to 739) may have qualified you for a previous mortgage, you may want to consider making adjustments to raise it to the “very good” range (740 to 799), which may increase your chances of mortgage approval.²
• A lower debt-to-income (DTI) ratio: While a ratio between 36% and 41% suggests that you have manageable levels of debt, you should target 36% or less for the strongest positioning.³
• Cash on hand: While showing proof of cash for two months’ worth of expenses is standard, if your credit score or DTI are not optimal, you may need to show closer to six months of liquidity – meaning enough idle cash to pay the expenses on all your mortgaged homes for half a year.

Keep in mind that these qualifications apply to mortgages on additional, nonprimary residences that you plan to live in for part of the year. Requirements for a mortgage on an investment or rental property are different and can be even stricter.

Silver lining: Your primary residence can help you fund your next property

If the tougher lender requirements are a downside, there’s a silver lining. As a homeowner, you can borrow against the equity you hold in your primary home to fund the down payment or potentially the full price of the home, depending on the value of your primary residence and the price of the new property. To do this, you have two options: a cash-out refinance or a home equity line of credit (HELOC). These approaches allow you to leverage your existing asset to finance your next, which could be a better strategy than tying up a lump sum of cash for a major purchase.

A cash-out refinance allows you to borrow up to 80% of your home’s current value, depending on your credit and how much equity you have.⁴ This will result in larger monthly payments and a new interest rate afterward.

A HELOC means that you’d be taking out a line of credit against your equity, which you could then use to purchase another home. For this to work, you’d need enough equity to qualify, and you’d have to be able to take on the expense of repaying your HELOC.⁵

It’s important to determine whether another home truly makes sense from an investment standpoint. Lenders’ terms may seem harsh, but leveraging the equity in your primary residence can be a great way to build out your real estate portfolio without tying up a lump sum of cash.

Questions to consider before buying another home

Once you’ve concluded that an additional home is a sound investment for you and your family, you may also want to think about why you want one in the first place.

Are you in a good stage of your life to accommodate an additional home?

Consider your current commitments and new factors that may be coming down the pipe in the near-term. For example, young wealth holders may not be ready or interested in tying themselves to a new property or specific travel destination, while those in their 20s, 30s and 40s might be planning to grow their family and need to be thoughtful about cash as well as space to accommodate more people and the logistics of traveling. Older homebuyers may be thinking about downsizing for practical reasons as they near retirement, and may not want to take on an additional property. Take the time to consider your unique circumstances and ensure that owning another residence fits your lifestyle.

Are you prepared for the maintenance that comes with it?

As you already know, there’s a lot that goes into home maintenance. From repairs to lawncare to cleaning, there is no shortage of upkeep as a homeowner. Seasonal homes may have additional maintenance considerations like prepping for off-season – especially if there is a pool or if the home is located in an area that might be more susceptible to storms or flooding. Before making a purchase decision, take inventory of all that would need to go into maintaining your new home and determine if the upside is worth it to you and your family.

Can you envision yourself enjoying the home for years to come?

Selling can be a headache – sometimes even more than buying. Even if there’s a place you love to visit on vacation, it might not make sense to purchase there. Will your preferences change, or are there other places you may want to prioritize visiting over using your new part-time home? Will owning create more tension among family members regarding usage and maintenance? While having an additional property can foster great family memories, it can also be a source of strife if the family has not determined in advance the rules and expectations that come with ownership.

All of the above questions only you can answer, but they are worth considering before pulling the trigger.

Finally, the housing market will always be a factor in any homebuying decision. While trying to time the market is not advisable, there are times when it is more difficult and costly to buy. The broader economy and the local economy where you’re searching can affect things like home prices, interest rates and housing inventory. It is important to take these things into account when determining if another home is a sensible purchase at that time or in that locale.

We can help

Before adding an additional residence to your real estate holdings, it may serve you well to talk with your J.P. Morgan advisor and a real estate professional to determine if this is the right time to purchase, and if ownership aligns with your and your family’s needs and goals.

IMPORTANT INFORMATION

This material is for informational purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.