25 Jan Purchasing a Second Property
Financing Options for Purchasing a Second Property: Use Your Home Equity to Land Your Dream House.
Did you know that many homeowners are paying off their mortgage early in order to use their home equity for purchasing a second property? It’s true. Depending on the property, it may be possible to purchase a new home without having to put any additional money down!
If you don’t have any cash on hand and want to buy a second property, then this is the article for you. We will go over: Your mortgage, how much is left on your mortgage, what kind of discounts you can get when refinancing your home, and the different ways of financing your next purchase.
Options for financing a second property
When purchasing a new property, there are two options for financing. There are loans that are backed by the government or private lenders.
If you get a loan through the government, you will need to put at least 20% down on the house. These loans are cheaper than private lenders but come with strict guidelines and have high monthly payments. They also have some strict qualifications that some people may not be able to meet. Private lenders, on the other hand, only require 5-10% down up front and have some more lenient requirements. But they typically have higher interest rates so monthly payments may be higher.
The type of loan depends on your personal preference and qualifications which is why it is important to do your due diligence before making any decisions.
Getting a mortgage
If you want to use your home equity for purchasing a second property, then you will need to refinance your current mortgage. The following are the steps to take:
Step 1: Get prequalified for a mortgage and find out how much equity is left on your home.
Step 2: Find out what the interest rates are and the monthly payments that you will be required to pay.
Step 3: Calculate what you can afford for monthly payments and compare it to the monthly payment of the new loan.
Step 4: Refinance your mortgage and make sure that your finances will allow you to make both payments every month without any financial hardship.
Using home equity to purchase a second property
A lot of people are using home equity to purchase a second property. There are many benefits to this, for example:
- You don’t have to put any money down!
- Refinance your mortgage and pay it off early so you can use the equity on your house for purchasing a new home.
- Invest in real estate without having to go through the hassle of purchasing one with cash.
This is an excellent way of being able to purchase properties without having to spend any of your own money. Here are some steps you will want to take:
What can you do with the money from your first sale?
The first thing you need to do is determine how much money you have from the first sale of your property. You can use this as a down payment for your next purchase.
Here are some examples:
- If you had $10,000 left on your mortgage and sold your house for $200,000, then you would have $190,000 left over.
- If you had $50,000 left on your mortgage and sold your house for $500,000, then you would have $450,000 left over.
- If you had $100,000 left on your mortgage and sold your house for $1 million dollars, then you would have $900,000 remaining in equity which is enough for a down payment or to cover closing costs on a new property.
The options for financing a second property are plentiful when you have equity in your home. You can use your home equity for a traditional mortgage or cash out the equity in your home to purchase a second property, all while leaving your primary residence fully intact.
But if you do decide to sell your home, you will want to plan for what you will do with the money that is left over.
Financing options for purchasing a second property are only one consideration when it comes to making this big decision.
For more information on what to consider when buying a second property, click the link below.
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