If you own a home, then you have the opportunity to build equity in your home. Your home equity is the value of your home minus the loan balance you have against the home. You can increase your equity by making improvements to your home and paying down your mortgage. When you have equity in your home, you can turn it into cash by using a home equity loan. These loans are viewed as second mortgages, and you are essentially borrowing money against the equity and getting a portion of that back in cash while paying it back in monthly payments. How exactly does this work, and how can it benefit homeowners? Let’s take a look. There is a lot to uncover that can benefit you as you begin your investment journey.
How to Use A HELOC To Buy Another Property How HELOC Loans Work
Home equity loans let you borrow against the value of your home. You will have to get approved by filling out an application and submitting financial documents to close on the loan. If you are looking to do this, you usually need the following documents:
- A 680 credit score or higher
- A debt-to-income (DTI) ratio of 45% or less
- At least 10% to 20% equity in your home Can I Use A HELOC On A Second Home?
You can use a HELOC on a second home. The process from your loan can be used for just about any purchase, so you can put it into additional real estate if you wish. This does have some risk because you are using your home as collateral, so you want to weigh all the finances before jumping into this decision. It can be beneficial because it allows you to keep your savings money untouched as you invest beyond your primary home.
Using a HELOC on an investment property gives you the funds to make a down payment on the property that will potentially bring in rental income and maybe even end up covering the HELOC repayment. One of the biggest advantages of using a HELOC on an investment property is that it is easier to qualify for a HELOC than some of the other options. Mortgages on investment properties can have challenging requirements compared to home equity loans. When you use a HELOC, you get a large amount of cash that allows you to put a down payment on a property. Your interest rate will be fixed, and you will understand your repayment terms. You will know exactly what you are getting into, and you will only be required to pay the interest during your draw period. When you hit your repayment period, you will likely have benefited enough financially from your investment property to cover the repayment out of your investment income profits.
Owning property provides homeowners with a wonderful asset that builds equity over time. If you are interested in looking for a home or investment property, contact us. We would be happy to assist you with all of your buying, selling, and investing in Green Bay Wisconsin real estate.