Home Equity for new down payment?

5 Replies

I have read a few posts about taking out home equity loans for a new down payment but I cant seem to wrap my head around it. I am moving out of my current home. Its value is about $300,000. I owe $200,000 on a 30 yr note at 3.6%. I have been planning on turning the house into a rental when I move. The house will cash flow (yes I have run all of the numbers). However I do not have the cash to purchase a new home yet.

So my question is, should I just sell, take the proceeds and buy 2 new properties? Or should I get a home equity loan on the 1st house to purchase the second? How does that work? Could I borrow the difference of 80% of the value and what I currently owe ($40,000). I like the idea of keeping the current property due to the very low interest rate, as apposed to getting an investment loan for a new property.

Thanks in advance for any help.

Yes, you can borrow against your equity in your residence with a HELOC. I would get the HELOC before you move out, since the rate will be lower when the collateral is your personal residence. I think your 80% is accurate, which would provide you with (theoretically) $40K available to use. Since you "like the idea of keeping the current property due to the very low interest rate" then I would not sell... instead go the HELOC (or LOC) route.

the way i see things you have 2 options.

1 keep the existing home and use the heloc to buy another property as long as the numbers make sense.

2 sell the existing home and use the equity to buy two.

it all depends on you goals etc. if your more of the flipper business model i would say use the heloc. of you buy and hold type do number 2

i dont know you whole situation is but i would like to point out that killer 3.6% interest rate. unless you have had crazy equity growth i would not sell.

let me know what you end up doing. cause im in the same situation

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@Kelly Williams another thing I would consider would be to check to see if your market is appreciating rapidly or is it pretty flat. If your home is going up in value at a fast rate It makes more sense to hold it and do a HELOC. If property values have seen little movement, look at the area you intend to target next and see it it a better rate. It they appreciate faster selling your home and buying 2 appreciating properties make more sense. Good luck

If you're going to borrow against your residence, though, be dang sure you can make those HELOC payments even if your rental business goes belly up.