Homebuyers have a number of options when it comes to financing the purchase of a new home. Traditionally, people who are relocating will leverage the prospective or realized value of their current home as a means to secure a mortgage on their new property, but this is not the only way to buy a home, or even to mobilize the equity in your current real estate ownership.
The mechanics of a move.
Typically when a homeowner decides to move, they seek out a new house and list their own on the property market. After having the home appraised, a homeowner will approach lenders in order to secure a mortgage loan to buy the new property. Often (60% of the time) a homeowner will still owe on their current loan amount and the mechanics of this new line of credit will take that debt into account. As a homeowner, once your current property sells, the remaining debt on the initial home loan is paid off in a lump sum payment and the rest can be utilized however you see fit. You can arrange to pay down the additional windfall on your new home in order to buy up equity in the new real estate vehicle right away, or opt to conduct upgrades to the property.
Often, new homeowners decide to invest in home improvements so that their new home is worth the logistical tangle of figuring out how to manage their new mortgage and previous mortgage loan amounts. A Grand Rapids window company is often one of the first stops for homeowners after a move in order to install new energy efficient window replacements, as well as with roofing and other contractors to shore up structural issues in roofs, foundations, and basements.
Adding property holdings.
Another avenue available to homeowners is the refinance home loan. Here, you can tap into lower rates by essentially taking out a new loan to cover the cost of your current debt obligation. This gives you lower monthly payments and a new rate that can save you thousands over the course of the life of the loan. Alternatively, refinancing can be utilized to extract equity from your home’s value by borrowing against the ownership stake you already have established. Instead of borrowing the amount you still owe, you can borrow a portion of your owned equity in order to free up cash for a new purchase. For homeowners at the end of their monthly payment schedule, you may be able to free up enough to buy a home outright without taking on a new loan correlating to the new property. This way, you can gain access to favorable market conditions that provide lower interest rates and buy a property to rent in whole. These loans are easier to access from a mortgage lender than an entirely new mortgage on a new property because you are essentially leveraging the value of your home instead of your credit score in order to gain approval.
The effect is powerful for personal finances. This can often lower your monthly payment while giving you access to an investment vehicle that pays out a steady stream of income every month – often covering the sum or lion’s share of your monthly mortgage loan obligation in the process. Adding property in this way to your investment portfolio is also a great way to supercharge your retirement account. Real estate investments are some of the fastest wealth producing assets that an investor can take on, and in the short term it can provide a lifeline to cover unexpected expenses or simply reduce the monthly payout that you already make on your current home.
Leveraging your property in order to buy a new house is one of the smartest moves a homeowner can make. Do your homework and understand the options laid out before you in order to take advantage of the capital productivity embedded within your home.