How To Buy a New House Using Your Equity

By Nick Philips

I take a simple and straight forward approach to helping everyday Nevadans buy and sell homes. Whether its your first transaction or your preparing for a 1031 exchange into a fourth investment property. Whatever it is I’ll help you navigate the hurdles. I’m dedicated to listening to the needs of my clients and executing a plan of action that works best for their goals. I specialize in real estate consultation for both sellers and buyers in Northern Nevada. As a Native Nevadan I inherently understand what makes the community thrive.

If you’ve owned a home for a few years or more, chances are you have a substantial amount of equity built up. This is great news for people who are looking to sell their home because it means you’ll make a large profit. However, if selling is not an option and you would rather use the equity you have in your home to buy a new property, what can you do? There are three great options for this kind of situation:

1. Home equity loan. This kind of loan uses your home as collateral to tap into your equity. The benefits of these loans are that they are often seen as less risky by lenders and, therefore, have better rates than other competing products and at a fixed rate. They also allow you to take out a lump sum of cash that can be used however you like, such as buying another home. Keep in mind that these types of loans have risks. They increase your debt load, come with closing costs, and, as with any loan that uses your home as collateral, they carry the risk of foreclosure.

2. HELOC. A home equity line of credit, or HELOC, is another potential option for homeowners looking to tap into their equity. This is a line of credit secured by your home that acts much like a credit card. The benefit to these types of loans is that you can choose the amount of equity you want to borrow against rather than taking out all of it in one lump sum. The drawbacks to a HELOC are that the interest rates are usually variable, meaning that the payments are hard to predict.

3. Cash-out refinance. A cash-out refinance is essentially where you replace your existing mortgage with another, larger mortgage, and you get to pocket the difference in home value. This is another option that gives you a large lump sum of cash that you can choose to put towards whatever you like. As with any loan, it will add to your debt burden and carry closing costs. A unique downside to these loans is that the interest rate is usually higher than with a HELOC.

If you are considering using your equity to buy a second home, the best thing to do is consult with your mortgage broker and financial advisor to determine whether this move makes sense for you. Remember, I am here to be a resource for all of your mortgage-related needs. Please reach out to me by phone or email with any questions that you might have about this topic or mortgage products in general.