Buy Property with Property,
Using Home Equity
Did you know, you can use an existing property that you own as a down payment for a separate property? You may have thought you need to tap into your savings or even retirement to purchase an investment property but that’s not the case! Now technically, you’re using the equity you’ve obtained from the first property, to help fund the investment of the second. This method is a convenient, low-cost way to keep more cash in your pocket.
When you use home equity, you’re often offered some of the lowest rates and best terms on the market due to the fact that you’re using a high value form of collateral – your real property. Lenders can usually provide better closing rates as well. Meanwhile, as you focus on the purchase your investment, your original property and remaining assets have the opportunity to continue to appreciate in value.
So how exactly do you go about this method of investing? You have several options. You may seek a home equity line of credit, also known as a HELOC, or a fixed rate home equity loan. The HELOC is an open-ended line of credit while the fixed rate is more like a second mortgage. With the HELOC option, you have flexibility due to the variable rates and with a second mortgage you’ll have set repayments. This is ideal when purchasing a property such as a rental that doesn’t need work or repairs.
Yet another option is what’s called a cash-out-refinance. With this option you’ll be enabled to refinance the remainder of your mortgage at current market interest rate and you’ll be able to request a loan with a balance for a larger amount which allows you to draw cash against the property at a discounted rate. What you’ve done is create a first lien mortgage on one property and given yourself a lump sum to take to closing. Lastly, if you’re at or above the age of 62 and own a large portion of your primary property you can go the reverse mortgage route. This allows you to use your equity as a lump sum or credit line which doesn’t need to be repaid until you leave the property.
For more information and investment strategies please contact Michael Barker by phone: 860-670-4309, e-mail: MBarker@LendSomeMoney.com or via online chat at: www.LendSomeMoney.com.