I work with a fair amount of second home buyers and investors – and am asked how to best go about financing these properties (and second homes), as well as their required down payments.
I recently ran across this article from Peter Miller at The Mortgage Reports – and it’s a great read for those looking to tap into home equity to purchase another home.
I’d invite you to read the full article here – and I’ll mention a few key highlights:
How much equity do you have?
At first, it may seem that the equity issue is simple. You bought a house for $150,000 and it’s now worth $275,000.
You’ve paid down principal, too, so your current equity is $190,000.
Can you really get a check for almost $190,000 from lenders?
Lenders generally will allow cash-out refinancing equal to 80 percent of your equity. They will see a property value of $275,000 and subtract 20 percent ($55,000). That will leave around $220,000. This money will be used to first repay the existing loan of $85,000. The balance – $135,000 – represents the cash available to the borrower.
With some program, you might do better. The VA cash out mortgage allows qualified borrowers to refinance up to 100 percent of their equity while the FHA cash out loan will go to 85 percent. However, these programs come with various charges and insurance costs that many borrowers with equity will want to avoid.
Cash-out refinance to buy another home
With cash-out refinancing, you can use the equity in your home for many things — but not for all things. For instance, you can use the money to pay for college tuition, to purchase a business, or buy another property.
Buying a second home or investment property
In terms of real estate, you can use real estate equity to immediately buy a second home or to purchase an investment property.
As soon as you close the cash-out refi, you can use those funds as a down payment on another home — or to buy the house outright — if you plan to keep the current home as your primary residence.
How to Go About a Refinance
Reach out to your lender to begin the application process. He or she should be able to coach you through the process – and identify the key pieces that will help you make an informed decision.
I’ve helped numerous investors with this process, and I’d be glad to see if this option might work for you, as well! Give me a call for more….