How much equity do you have to have in your home in order to be eligible for a home-equity loan? Is it a minimum of 20%, and for example if you have a home worth $200,000 and you owe $160,000 but have $40,000 in equity, is that $40,000 useable towards your next home loan if you choose to put it down? Also, do you have a better chance qualifying for a second home mortgage if you put your first home as collateral with whatever equity you have in it? Or in order to place it as collateral do you have to have most of it paid off?
Thank you in advance.
Howdy @Arthur Voskanyan
Requirements can vary Lender to Lender. But typically you need a decent Credit rating over 700 for good interest rates. DTI no more than 43%. The amount you can borrow can also vary like Refinance loans. 85% of Property Value is a good average. Using your example: $200,000 Property Value
X .85 = $170,000 Maximum Amount
- $160,000 Remaining Loan
= $10,000 Actual Cash Available
I am no expert on using one property as collateral to purchase a second. This is just my opinion. I assume you are talking about using the equity in the first as the down payment for the second. That really is the same thing as doing the HELOC. The original property will be required to maintain 15 - 25% in equity in the property as long as you have a mortgage on it. Therefore, any equity (cash) you want to pull out will need to be over the 15 - 25% threshold. If you are looking to purchase a second property for $200,000 and need $40,000 (20%) as a down payment your first property would need $70,000 in equity availability.
Hope this helps.
Thank you John, I’m little confused as to where are you getting 85% of $200,000, is that a standard percentage? Also you said, in order to get a 2nd mortgage of $200,000 value of property I would need $70,000 equity available? I don’t see why would I need $70,000? Wouldn’t I only need 20% not 35% which 70/200,000? I don’t see why I need $70,000 worth of equity.
So the example of, 85% of $200,000 is that a standard amount you can borrow against your home value? So if they remaining loan is $160,000 like you said, $10,000 is my available cash, but I wouldn’t use that $10,000 as a down payment, they would use the extra 15-20% over the 20% threshold of my original home’s equity of $40,000 as a downpayment for new home correct?
Is the $10,000 available cash in our example is a reference to a HELOC rather than just a regular home equity loan?
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