How to Use Your Equity to Buy a New House
Whether you are interested in California real estate or the new array of new homes from California home builders, there are ways to buy a second home or an investment property. Many buyers take advantage of the equity from their existing home to do just that.
What is Home Equity?
Home equity is the difference between your home’s value and what you currently owe on your mortgage. When home prices rise, you have more equity. That means you can put the difference between your mortgage and your home’s value to work for you. With a variety of options in new homes for sale at a variety of price points, home equity can be a path towards the future.
If you are interested in buying a second home, such as a California real estate or vacation home, and you do not have the liquid funds needed for the down payment, you can leverage your equity. In the case of buying a second home, you can use your equity to get a loan or even a line of credit.
Facts About Home Equity Loans
When you use your home equity there are many benefits. The interest rate you will receive will be lower than on a personal loan. HELOCS (home equity line of credit) tend to have lower fees and smaller closing cost. Summed up another way, in most cases it will be better to leave your IRA or investment portfolio untouched and consider using your equity instead.
Another key point is that home equity loans tend to be considerably less than your first mortgage. Many of the regular closing costs associated with buying a home don’t apply when you are using your equity.
Variable Interest Rates (VIR)
It is important to note that your loan interest rate on a second home will likely be higher than your current mortgage interest rate. It is also possible that you will be offered a variable interest rate. VIR loans should usually be approached with some degree of caution and a clear understanding of what is involved.
Variable interest rates mean that if prime lending rates fluctuate, then your payments do too. You can expect the cost of VIR loans to be higher as well. Lenders realize that you are less likely to default on your primary residence. This means that for lenders funding a second home comes with greater a greater level of risk.
Your Equity is a Powerful Tool
When used wisely, your home equity can help you buy an investment property or land one of the many California homes on the market. This buying strategy can help you buy a second home without tapping into your savings, and that can help you reach your financial goals.