Buy your second home | Financial readiness guide - NAB

Why financial readiness matters before buying your second home

Buying a second home is exciting, but the best time to do it is when your money situation is solid. Lenders look at your income stability, your savings, your debts and your credit score. If those areas are strong, you’ll find it easier to get approved and to handle repayments without stress. A clear plan also helps you avoid surprise costs like rates, insurance, and maintenance.

Assess your financial health

Before you decide whether you can take on a second home, it helps to step back and look at your overall financial position. This means checking how steady your income is, how much you have saved and whether your current debts are easy to manage. A clear snapshot of your finances makes it easier to understand what you can realistically afford and what might need improvement first. If you need a simple starting point our budgeting guide can help.

Stable income and employment

When you apply for a loan on your next home, lenders want to see that your income is steady and likely to continue. They look at:

  • How long you’ve been in your current job.

  • Whether your earnings are consistent and if your work type is reliable.

  • Full time and permanent part time roles are usually seen as more stable, but contractors and self-employed borrowers can still qualify if they can show a solid income history.

Selling your home to buy again

If you plan to sell your current home i to buy, lenders may assess income a little differently. In this case, they might focus more on whether the sale will fully clear your existing loan and how the timing of the sale aligns with your new purchase. A steady income still matters, but your selling strategy can help offset the pressure of holding two loans at the same time. If you’re looking to sell your current property to buy again, bridging finance may help.

Converting your existing home into an investment

If you’re buying as an investor, lenders may also consider proposed rental income. This can help your borrowing power, but it usually will not replace the need for stable personal earnings. Most banks only count a portion of expected rent, so having consistent employment income is still important, even when the property is meant to generate returns.

Emergency savings

Buying a second home often brings extra pressure on your budget and having a safety buffer means you can handle surprises without falling behind on repayments.

  • Most experts suggest keeping at least three to six months of living expenses saved, especially if you’ll be managing two properties at once.
  • These savings are not the same as your deposit.
  • They’re there to protect you if something changes, such as a sudden repair, a temporary loss of income, or higher-than-expected holding costs.

Manageable debt-to-income ratio

What is debt-to-income ratio?

Your debt-to-income ratio, often called DTI, compares the money you earn to the money you already repay each month. This includes credit cards, personal loans, car loans, and your current mortgage. Lenders use it to work out how much extra debt you can comfortably take on when buying a second home.

Why a ratio under 6 matters

A DTI ratio of 6 or lower is usually seen as a sign that your budget has enough room for a new repayment without pushing you into financial pressure. If your DTI is higher than this, it doesn’t always mean you cannot buy, but it can limit how much you can borrow or lead to a stricter assessment from the lender.

In case your DTI is too high

If your ratio is above the healthy range, you may need to reduce some debts, increase your savings, or improve your cashflow before applying. Even small changes, such as lowering credit card limits, can help. Some borrowers also choose to delay buying until their expenses settle or their income increases.

Check your borrowing power

Your borrowing power depends on how much you can borrow, how much equity you hold, and whether your monthly cashflow supports new repayments.

  • Begin by estimating your limit with a borrowing power calculator.

  • Test different rates and terms to see how much income should go to mortgage without stretching your budget.

  • Check usable equity, usually up to 80% of your property’s value minus your loan balance, which can help your deposit.

  • Finally review cashflow to make sure you can handle higher repayments plus extra costs like strata, insurance and utilities and stress test for rate rises and repairs.

Budget for upfront and ongoing costs

Upfront costs

Buying a second home means preparing for several one-off expenses before settlement. These costs can add up quickly, so planning early helps you avoid delays or surprise fees.

  • Save a deposit, ideally 20 percent, or 5 to 10 percent with Lenders Mortgage Insurance.
  • Plan for closing costs, usually 2 to 5 percent of the property price.
  • Include legal fees, conveyancing, and building or pest inspections.
  • Budget for stamp duty and government charges.
View all upfront costs

Ongoing costs

After settlement, ongoing property costs become part of your monthly and yearly budget. These are easy to overlook, especially when you already own one home, but they are essential for long term planning.

  • Council rates and strata or body corporate fees.
  • Home and landlord insurance, depending on how you use the property.
  • Utilities such as water, gas, and electricity.
  • Routine maintenance and unexpected repairs.
  • Seasonal expenses like gardening, gutter cleaning, or appliance servicing.
View all ongoing costs

Check your credit score

Your credit score affects approval and the rate you receive. Lenders use it to see how reliably you’ve managed debt, including on time repayments and how much credit you use. A stronger score can make approval smoother and may reduce borrowing costs over time. If your score is lower than expected, pay bills on time, reduce card balances, avoid new applications, and check your file for errors.

Get pre-approved

Pre-approval shows how much a lender is willing to lend based on your financial details, so you avoid guessing your price range or chasing a property that does not fit your budget. It also strengthens your offer because agents and sellers know your finances have been checked. During pre-approval, lenders review income, savings, debts, and credit history, so organise your documents early and fix any gaps before you apply.

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Terms and Conditions

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.

Target Market Determinations for these products are available at nab.com.au/TMD.