Did you know that in many cases you can use the equity in your home or other existing property to finance an investment property?

But how?

Here are some things to keep in mind…

First, understand that your primary home may be your best and lowest-cost financing source.  Typically, second mortgages and homeowner’s line of credit (HELOC’s) have some of the lowest interest rates on the market, more favorable than construction loans, private lenders and other sources of funds.  In fact, if you have enough equity to finance the full value of the investment property, you can save on both the lending fees and the higher interest rates commonly applied to mortgages on investment property.

Your vacation property, second home and other investment properties may also be used as sources of funds.  The interest rates may be slightly less favorable than your primary residence for lines of credit and second mortgages.  As with your primary residence, if you have enough equity to finance the full value of your new property, you will save on the lending fees.

In addition, remember these tips…

1. Use property in which you have high equity.  A bank will typically not lend beyond a 75% to 80% of the value of the property.

2. The bank holding your first mortgage may have an easy process for accessing sufficient equity in your home or other property.  However, some banks are reluctant to lend against their mortgage-holder’s equity.  In that case, consider a cash-out refinance – and place it with a new lender who will provide a second mortgage or a line of credit later on, after you have built back the equity.

How have you used equity in existing properties to purchase a new property?

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