Can You Use Your Equity To Buy Another House?

After a few years of living in your current home, you might be interested in using that equity you’ve built up to buy an additional property.

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If so, great plan! Using equity in your home is one of the most common ways to transfer wealth that you’ve built in an asset and transfer it to another asset.

You’re probably facing two scenarios, either you’re:

(1) Using your equity to buy another home you’ll live in, or
(2) Using your equity to buy an investment property

In option 1, you’re using equity in your home to transition to another home you’re going to live in. Using equity this way is very common for a “move-up” purchase. A move-up purchase is where you take your equity and use it as a down payment to afford a larger home.

It’s almost like you’re climbing the ladder of home size with the equity you’ve gained over time.

In option 2, you’re using the equity in your home to put money down (or purchase in cash) on an investment property. Maybe you’re planning on flipping this property or renting it long term. Either way, this is a great option to make your money work even harder for you.

The equity in your home gains appreciation as your house appreciates, but in an investment, it appreciates AND gains cashflow through tenants.

So, how can you pull equity out of your home? First, you need to make sure you have enough equity to begin with. Most lenders will only allow you to have a max Combined Loan To Value (CLTV) of 80% - 90%, this depends on the program and lender.

Here’s how to find this out:

(Value Of Home) * (max CLTV allowed by lender) - (Current Mortgage Balance)

Here’s an example: let’s say you own a $300,000 house and you still owe $150,000 on it with a first mortgage. So, we would take $300,000 * 80%. That equals $240,000 as the max CLTV we can have. Then we subtract our Current Mortgage Balance from the CLTV. So, $240,000 - $150,000. That leaves us with ~ $90,000 we can pull out in equity.

Here are 3 ways you can pull equity out of your home:
(1) Selling your home first - this is the most simple, but requires you to either get pre-qualified with two mortgages (not easy to do) or risk selling your home without a solid offer on another home.
(2) Home Equity Line Of Credit - a HELOC is a line of credit that draws against your home’s equity. It may be interest only, but could have a variable rate. This is good for short term usage.
(3) Cash-Out Refinance - instead of a line of credit, you’ll receive a lump sum of cash for you to use and you’ll refinance your first mortgage into a fixed rate.

Using your home’s equity to acquire more real estate is a great option. Using built-up equity in this way will help you put your money to work and leverage it to gain additional income or a home that might appreciate more (especially if you’re moving to a good school district or desirable neighborhood).

Hey, my name is Kyle and I'm a Mortgage Advisor serving Tennessee, Florida, and Ohio. My goal is to help you get a crystal-clear home loan that helps you win the house you love. If you're ready to create your home-buying plan, you can reach me through any of the ways below:

0:00 Can You Use Your Equity To Buy Another House?
0:59 Buying new primary residence
1:39 Buying instant property
2:39 3 main ways to pull equity
3:22 Sell
4:10 HELOC
6:31 Cash-out
7:59 How to calculate

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[TheBandoury]

One thing to pay attention to, if you have a mortgage on your current property with interest rate that is LOWER than the market interest rate, leave it alone. To pull out cash from your equity, the cash and your existing mortgage interest rate will be matching the current market interest rate, you'd be increasing the interest rate on your old mortgage . you'd be better off taking out a new mortgage for your prospect investment.

[ryanturner]

These are the type of classes we need in our highschools..

[silverpod]

The quality of your content—succinct, accurate and right to the point—is so good. Also, your calming tone of voice about complex topics make your channel very pleasant. Thank you for sharing so much valuable information! This is quickly becoming my favorite channel!

[arunodaichanda]

I watched your video during my first home purchase and now I am watching it for my second home. You have been excellent. Thank you.

[tootsiewunderlandzzz]

I don't even have an idea about mortgages but your voice is so calming like I'm watching an asmr. What a great video. What a great teacher.

[KnownAsSimo]

Always delivering golden knowledge and advice! I just turned 23, closing on my first house at the end of June and will be using that as my primary residence to cash out refinance and buy my first investment property in the future! Thank you for everything you do 🤝

[sarahvice]

This is right on time for me! My husband and I have a house appraised at around $285, 000 to $300, 000 range and only owe $63, 000 and need our equity to do some upgrades but were told that a heloc wasn’t the smartest route by my mother but she wasn’t sure what other options were available and now I have our answer a cash out refinance and buy other properties or a property which we also wanted to do! Thank you, thank you for this information!!

[graphicsociety]

This is super informative and concise with a good quality recording. Thank you so much.

[lizhernandez]

I usually have a hard time understanding new housing concepts and felt like I understood this with one watch, you taught it so well! Super helpful!

[ChefBlairSilva]

Good job, clear, calm and direct. Appreciate your efforts

[mishtistales]

Is there any way to have the HELOC with 0% APR for some period (1 year?) like it happy with many credit cards?

[Rapano]

Thank you that is awesome. How long must you wait before purchasing a second house? How much equity is good to purchase a second house?

[carlosoro]

My guy, this video is awesome! I’m a new realtor in the San Francisco Bay Area.

I just had two nice ladies that asked me about the market. They have owned their current home for about 20 years… They aren’t thinking about buying or selling but I didn’t use the words to tell them that they could use their home equity to buy an investment property with the current home they own! What you said in this video is exactly what I should have told them… I’m going to contact them again and hopefully I get a second shot of redemption to potentially encourage them to invest in a rental property 🙌🏼 Thanks for sharing!

[BestiaProductions]

Problem with heloc loans is it is hard to get one if you own a business. I have a house worth around 200-250k and no mortgage but since I have low income “due to owning a business” I can’t qualify. How bizarre. But maybe I need to keep trying other banks…

[SuperTopher]

We have no mortgage. What is the smart choice to purchase a second home in a warmer climate. We would love to be there for the summer and rent through a Home and Away or VRBO for times we are not there. Your thoughts?

[noy]

Great video. Could you make video for first time home seller?

[crb]

The question is what rate of return do you want from the invested money? If the heloc is say 8% int, your rate of return on the invested capital needs to exceed that for it to make sense. Ive done it before and seldom makes sense in the end.

[daniellemccollough]

This was great! Very thorough and helpful. And your voice made it even sweeter! Melodious.

[SamadRouf]

I have one question Let said if you paid off your mortgage. Can you able to take 100% equity to buy another house?

[stevenmartinez]

Cashout refinance on 1st bought primary residence home, use the equity as down payment on another home as new primary residence, convert my 1st home that was refinance to a rental property.
What lending terms are required when trying to achieve this? Does the refinance loan require 20 percent down since the house is now intended to be rental ?
Tax & insurance implications on the converted primary to rental ?