Can You Use A HELOC To Buy Another Home?
It’s time to tap into the power of ℎ𝑜𝑚𝑒 𝑒𝑞𝑢𝑖𝑡𝑦, friends!
Home equity is the sweet difference between your home’s value and your outstanding mortgage balance. It really is hidden treasure.
With a heloc you can leverage your home equity to fund your downpayment for that jaw-dropping new place. Skip the 20-year savings plan!
So, to answer the question: Can you use a HELOC to buy another home? The answer: YES
This strategy is known as a home equity down payment. Here's how it generally works:
- Determine Your Equity: Calculate the current market value of your home and subtract any outstanding mortgage balance or liens. The remaining amount is your equity.
- Assess the Loan-to-Value Ratio: Lenders typically have maximum LTV ratios, which determine the percentage of your home's value that can be used for a down payment. For example, if the maximum LTV ratio is 80%, you can use up to 80% of your home's equity as a down payment.
- Get an Appraisal: The lender will require an appraisal to determine the current market value of your home. This helps determine the amount of equity available for a down payment.
- Apply For a New Mortgage: Once you know the equity amount you can use, you can apply for a new mortgage to purchase your new home. The lender will take into account your income, credit history, and the available equity as part of the approval process.
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