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When it comes to real estate markets, it is vital to have easy access to funding while buying another home. If you are wondering whether you can use your equity to purchase another house, then you’ll find the answer here. Home equity loans can be very low, and can also be a convenient way to facilitate your home purchase.
If you’re considering using your home equity to buy another house, there’s one vital question to ask yourself —Is this intended property meant to be a second home or an investment?
It is important to have a defined goal in mind before purchasing.
Home equity is the type of mortgage that allows individuals to have access to the equity that has already been built in their home.
To simplify it, it is the difference between the worth of your home and what you owe your lender. The more you make mortgage repayments and minimize the balance of your home loan, the more you build better equity.
When you have good home equity, there’s a possibility to receive additional money with a lump sum payment which will then be repaid to the lender in fixed installments over time.
Using your home equity to buy another house can become an advantage for you since home equity is secured. Good home equity will offer you lower interest rates and also have higher borrowing limits than a lot of unsecured personal loans.
Even though there are advantages to using your home equity to buy another house, there are also some potential risks.
If you have an interest in using your home equity to buy another house, then the value of your home will need to be higher to support buying another house. Not only that, but you’ll also have to meet up with other requirements of your lender.
Below is how you can use your home equity to buy another house.
First, Decide What You Want
Note that before you take any equity out of your home to buy another house, make sure you decide what you want and need. A bad home equity limits how much you get. Sometimes your lender can give you access to up to 85% of your home equity.
Ensure You Have Good Home Equity
Having good home equity makes you eligible to access a good sum of money since you will be using your home equity as security. This is because it has a fixed interest rate and also a fixed monthly installment payment over a while.
You can use a loan amount calculator to see the maximum amount you will be eligible to get when buying another house using your home equity.
If you didn’t know, a cash-out refinance is the type that pays off your current mortgage with a big one based on the accumulated equity in your home. This means that you can then use the extra cash in buying another house. However, you’ll now have more debt and larger monthly mortgage payments. But note that these types of refinancing also have closing costs which can run into thousands of dollars.
If you’re a homeowner that is 62 years or older, you will have an additional option of using your home equity to buy another house via Home Equity Conversion Mortgage (HECM). This is also referred to as a reverse mortgage.
HECM gives borrower’s ability to access home equity without any down payments. But the loan will be repaid whenever you leave the home. Reverse mortgages offer a flexible method of using your home equity to buy another house. This means as borrowers, you can choose between getting a lump sum or a line of credit.
But be aware that while you will not make a down payment with a reverse mortgage, the interest will accrue. It may make the loan balance increase and can end up consuming your home’s equity.
Having a good home equity can make buying another house easier for you. Just like regular mortgages, your home equity will be secured by your home, though it may be at risk if you can’t repay. If you’ll rather not put your asset at risk like that, there are other alternative ways you can use to borrow funds in Canada that may a more suitable option for you.
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