Should You Use Your Home Equity to Buy Another House?
Many people are trying to find ways to earn some extra money and save for retirement. One way to earn money is in real estate. As home prices have gone up, many people are finding that they have increased equity and are one way to potentially earn some extra money is to use your home equity to buy another home. Rather than tapping into your savings, you can use your home equity as a down payment on another home. CNN Money discusses how home owners can leverage their home equity to buy another home, “Home equity is the difference between what a person owes on their mortgage and their home’s market value. For example, someone who owes $200,000 on a home that is worth $300,000 has $100,000 in home equity. As home prices rise nationwide, so too does the value of your home’s equity. That value can be monetized through a home equity loan, home equity line of credit or what is called a cash-out refinance. (That’s when you take out a new loan with a higher balance that pays off your existing mortgage and then you can use the remaining balance toward other things, like a second home).” A second home can be used as a rental property and can earn extra monthly income. It will also be another asset that can help you build more equity. Additionally, there are tax benefits to owning another property. While there are certainly benefits to leveraging your home equity to purchase another home there are also risks. If you have trouble finding a renter you will be saddled with two mortgages to pay, Lenders will also be more strict when trying to acquire a second loan. They may charge higher rates, require a bigger down payment and be more strict with credit checks. Using your home equity to purchase a second home can be a great way to use your home equity rather than leaving it tied up in your house. While it has risks, the rewards can be significant in owning a second property. Consult a realtor today to help you find a property that will be a great rental.