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July 29, 2022

How to Use Your Home Equity for Your Next Purchase

By

Tim Clarke

How to Use Your Home Equity for Your Next Purchase

Selling your home is just as much of a lifestyle decision as it is a financial one.

Like any other investment, it is important to make sound and responsible decisions.

Owning real estate creates options for leveraging finances that never existed before property ownership.

One of those options you have is to use your current equity to create an ideal situation on your next move.

Over recent years, homeowners across the country have been gaining more equity in their home than ever before.

By leveraging the equity in your current home, it is much easier to upgrade to a home better suited for your lifestyle or build wealth by acquiring additional properties. 


What is Home Equity?

The equity in your home is currently the market value minus the mortgage payoff amount.

The equity in your home grows in two directions: from your on-time mortgage payments and from appreciation of your home’s value. Getting the right mortgage and being a steward of your mortgage payments is just as important as buying the right home.


How Can I Use the Equity in My Home?

If you are considering selling your home, you should consult with one of us right away to ensure that you maximize your home’s selling potential in this current market climate.

Whatever your motivation is for selling your home, you'll need to create a solid plan for how you're going to buy a new house.

Instead of using your savings for another down payment, you can leverage the existing equity in your home to fund the purchase of your next home. There are a few options you have to use your existing equity when selling your home:



Use Your Equity for the Down Payment of Your Next Real Estate Purchase

As you go through the process of selecting a lender, there are a few things you would need to consider.


As collateral, some lenders may allow you to use the equity in your current home to purchase your new home and possibly a secondary investment property.

A great advantage is that your current mortgage service provider may give you the same rate as your current mortgage.

Refinance and Cash Out

This option allows you to pull equity out to use towards the purchase of your new home.

This most commonly works if you’ve already refinanced before selling your house. You should be able to use as much as 85% in equity of the home's appraised value.


Take Out a HELOC

A HELOC (Home Equity Line of Credit) doesn’t require you to take out the entire amount requested if the amount needed is less. 


For example, if your HELOC is for $50,000, you can choose to only use $30,000 of it. The biggest benefit for this is that you only pay interest on the amount used, not the full amount. 


Go All In

Several mortgage lenders may allow you to accept a loan for 80% of the purchase price if you choose to take out a home equity line of credit for the remaining 20%.

You could use the proceeds of the sale of your home to pay off that home equity line of credit.

Leveraging your home equity to fund a new house purchase is a clever move.

It gives you a liquid cushion so you are better prepared for any unforeseen issues and you’ll know what to expect when selling your home.

It, of course, depends on how much home equity you currently have and how much you need to finance for a new or second home.

Speak with one of our agents to determine if leveraging your equity when selling and buying at the same time is the right decision for you.

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