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Use Existing Equity to Buy a New Home

In my last video, I asked you all to submit your questions about real estate to me, and I’ve gotten a lot of terrific responses.

Today I’d like to answer a question from Amanda in Greenville, who asks, “What is the best way for someone that owns a house to buy a new home if they want to use their existing home’s equity as the down payment (as opposed to cash)?” In other words, how do you avoid living on the street while your new house sells? Is there a way to find your dream home and then sell your existing home?

In answer to your question, the first thing we need to determine is how much equity you have in your home, and secondly we need to determine your risk tolerance—are you willing to be in the position of owning two homes if need be?

A short-term rental may be a worthwhile solution in the meantime.

The first way to tackle this would be to first go down to your local bank and take out a home equity line of credit, which is used very much like a checking account. Remember, though, you are borrowing so you’ll have to pay interest on this line of credit. Then, use that credit line as a down payment on your next home, put your existing home on the market, and use that timeframe to market your home and move into your new one.

In this market, depending on the price point, there’s a good chance that you will sell your existing home quickly. We’re in a low-inventory market, so if you’ve found that dream home, you’ll want to make a non-contingent offer and use that home equity to put a down payment on it. Just be sure that you qualify for both the existing loan and the loan for the new home.

In order to ensure that this goes smoothly, you’ll want to bring in a great mortgage person to help you through the process.

The other, less risky way to approach this situation is to get your home on the market, sell it, get it under contract, and then begin looking for your new dream home. Again, in the environment we’re in now, it’s possible that you may not find that perfect home in this short time frame, so you may want to have a backup plan to rent a home for a while until you find the one you’d like to buy. Moving twice may not be the most fun thing to do, but a short-term rental may be a worthwhile solution to keep you from jumping the gun on a home purchase.

Thanks for this great question, Amanda! For participating in this process, we’ll be sending you a $25 gift card. In the meantime, if you have any other questions related to the buying and selling process, don’t hesitate to give me a call or send me an email. I’d be happy to help you.

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