Using your equity to purchase a second home
Let´s assume that you have owned your home for a few years, but now your family grew: a new baby was born. In fact, you need a bigger house. You also want to move to another area where there are better schools. The only problem is that for the last few years you have not saved money for a new down payment. What can you do?
If you have lived in that home for some time, you´ve built up some reasonable equity for sure. If this is so, you might want to use your equity to buy the new home that you need. As we explained in some other Yourcasa articles, your equity is the difference between your property's market value and the balance of your mortgage. Let´s see how it works with a simple example.
Example of home equity used to purchase a second home
Let´s say that the market value of your current home is $300,000 and the balance of your mortgage is $200,000. It means that your home equity is $100,000 because this is the difference between those two values.
That said, the house of your dreams costs $400,000. It is located in the area you want and it also has an additional room for your newborn. So if you decide to sell your home, you can use your $100,000 of home equity for the down payment and the closing costs. You also can use $80,000 as a down payment, which is the 20% of the property value. The remaining $20,000 is for additional purchase costs such as legal fees, stamp duty and so on.
The advantage of paying off 20% of down payment is that you do not have to pay the Private Mortgage Insurance (PMI): something you are required when the down payment is less than 20%. At best, getting rid of this PMI and bringing with a good down payment, you end up paying off almost the same monthly payment for a better house.
Moving from one home to another
You might be wondering: how do I make the switch from one home to another? You may want to add a clause to the contract in which the purchase is subject to the sale. It means that you will not move into the new house until you sell your current home. Are you planning to move soon? We can provide you the best lenders and Real Estate agents in your area. All you need to do is to contact Yourcasa or call us at 1-866-200-5250.