Tapping Your Equity to Buy a Second Home
By Les Christie @CNNMoney
Should I use my home’s equity to purchase another property? — Anonymous
With housing markets heating up and interest rates still low, it can be a great time to invest in real estate. But if you don’t have a lot of extra cash on hand, how do you pay for it?
There are the usual methods, like financing the purchase with a mortgage or selling some stocks and bonds, and the usually bad ideas, like taking money out of your IRA or a loan from your 401(k), but some second home buyers have another option: the equity they’ve built up in their home.
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Home equity is the difference between what a person owes on their mortgage and their home’s market value. For example, someone who owes $200,000 on a homethat is worth $300,000 has $100,000 in home equity.
As home prices rise nationwide, so too does the value of your home’s equity. That value can be monetized through a home equity loan, home equity line of credit or what is called a cash-out refinance. (That’s when you take out a new loan with a higher balance that pays off your existing mortgage and then you can use the remaining balance toward other things, like a second home.)continue reading »