Can I use a home equity loan to buy another house?
Recently updated on January 19th, 2024 at 07:31 pm
Can I use a home equity loan to buy another house?
Are you considering an investment property? Or are you thinking about purchasing a holiday home? The good news is that if you already own a house, you can often use the equity in your current home to buy another property without a cash deposit.
Read on to learn more about a home equity loan and how you can use it.
What is equity in your home?
The equity in your home is the value of your property minus how much you still owe on the mortgage. Or in other words, equity is the amount of your home that you actually own. You’re building your equity with every repayment you make while also reducing your loan balance.
How does equity work?
Your home equity increases with the number of mortgage payments made and when the value of your home rises. Also, when you renovate your home, you add value to it, which also helps increase your equity.
Equity is an asset that can be withdrawn. For example, you can use your built-up equity as a deposit for a new loan, contribute towards purchasing a new property or pay for renovations.
Can you use equity to buy a house?
Yes! If you have accumulated sufficient equity, you can use it as a deposit on a second property. It’s also common to refinance the current property to release equity.
How much equity do you need to buy another home?
A 20% deposit is usually required to purchase a new property. Keep in mind that a home equity loan won’t usually provide 100% of your home equity. The proportion of equity you’re able to borrow varies from lender to lender, though it’s usually approximately 70%, minus your outstanding debts.
What is a home equity loan?
Your current home secures a home equity loan. You can obtain an equity loan if you have substantial equity in your existing property. You can apply for this type of loan if you have an existing mortgage or you own your home outright. The loaned amount is provided as a lump sum that you pay back in fixed instalments over an agreed time.
With a home equity loan, there’s a limit to the amount of equity you can borrow against. In general, it’s about 70% of your property value minus any existing debt secured against it.
A home equity loan uses the equity you have in your home so you can access funds for a variety of purposes.
Traditionally, home equity loans in Australia were for longer periods (usually for 5-15 years). However, a good number of specialist lenders, fintechs and private lenders like Mango Credit now offer short-term home equity loans that have a duration range of 2-36 months. Short-term home equity loans are suitable for borrowers who may only need access to funds for a short period.
Mango Credit is a leading provider of short-term loans for personal and business use in Australia. The company funds short-term first and second mortgages, fast caveat loans, home equity loans and business loans that borrowers can quickly and easily apply for online. We provide flexible underwriting with minimal documentation, and no credit check is required. Funding typically is available within 3-5 days from an approved application.
Key takeaway
If you have a significant amount of equity in your home, you can tap into it through a home equity loan. You can use the loaned amount to buy another house or property. Similar to a regular mortgage, your home also secures a home equity loan.
Mango Credit
Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management