Using Your Current Home’s Equity When Buying a New One

Can you use equity in one home to buy a new one? It isn’t for everyone, but many people use this strategy. They get an equity line on their current home so they have cash available to buy a new house. After buying, they sell their first home, using the proceeds to payoff the line and mortgage.

The advantages are that you don’t have to qualify for a new loan (other than the line of credit) and you have cash in hand, giving you leverage with motivated sellers. The downside is that if you can’t sell the first house quickly, you’ll have two monthly payments. Plus, a line of credit typically has a variable rate higher than a conventional mortgage. There are also tax implications, so consult your tax advisor before using this strategy.

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