“Refinance to buy a new house”
The best way that you can get a new house at the moment is by using the equity of the current home that you are staying in. The ability to do this depends on your credit rating as well as the amount of your home equity. Secondly, it is important to consider a bridge loan if you are thinking of buying and selling the house. The final option that you have in this case includes going for a home equity loan or HELOC.
There has been soaring real estate equity in recent years, and many American homeowners are wondering on whether they can get a cash-out to refinance to buy new houses. The homeowner equity has seen steady growth from $6 trillion in 2009 to $15 trillion in 2018. It is possible that the equity you have may not be readily available to purchase the house that you want. If the cash-out refinancing is structured in the wrong way, it is possible not to get a new house.
Are the HELOCS a better option?
A HELOC can be used to pull equity out of a home, and it may involve taking money out during the first few years of the loan term and putting it back. This method has various drawbacks that may include having an adjustable interest rate rather than the normal fixed rate and that it might be higher than the normal mortgage. It will also need you to watch on the balances to ensure there are no steep monthly costs.
HELOCs are made in two phases that include the drawing phase and a repayment period. The drawing phase involves paying of the interest rate on what you only use while the repayment period includes paying off the loan balance over the remaining loan term.
What of the Bridge loans?
The bridge loans are not structured and will allow you to move equity from one home to the next. It is the most preferable if you need short-term financing and there are no monthly requirements that are needed. You can repay the Bridge loan immediately you sell the current house. With these advantages, the bridge loans have high-interest rates compared to HELOCs and cash-out refinancing. It is also possible that you will incur a lot of up-front fees.
How much equity do you have?
To calculate your home equity, you will have to consider the difference between what you owe as a mortgage and market value of the home. For example, if you owe a mortgage of $200,000 and the value of the home is $300,000, then the home equity is $100,000. The value of the home equity drops or rises with the changes in the prices of homes countrywide. The value explained above as the home equity can be monetized through a home equity loan or the cash-out refinance. This decision has both advantages and disadvantages.
The advantages include:
1)The lenders in the market tend to provide more favorable terms to those people who use their home equity to pay for a second house because they have more skin in the game.
2)When you use your home equity to buy a second house, it is possible that you will work harder to pay off the loan and there is a low possibility of missing out on the payments. There are those who take a separate mortgage, and they may stop paying for the same along the way, and this might lead to increased risks, increased bank rates, or even large down payments.
3)The home equity borrowing costs are lower as many costs are not covered such as insurance and title searches. There are potential savings when you use the home equity to buy a new house.
4)You can also claim tax deductions for the interest payments on a second lien equity loan.
The disadvantages include:
1)You will be exposed to increased monthly mortgage payments, and this might lead to the risk of foreclosure of the first home if you fail to keep up with the payment schedule.
2)Having two houses also might be a risky investment as it is putting all the finances in a single type of asset investment.
Please feel free to contact one of our advisors to help you get a loan for your new house. 855.424.0232
American Team Lending