If you’re looking to invest in real estate but wondering where to get the money to do so, you may not have to look any further than your own home.
If you have a good amount of equity in your primary residence, one financing option you may want to consider is a HELOC, or a home equity line of credit. A HELOC is a type of loan that allows you to borrow against the equity you have in your home.
Here’s how you can use a HELOC to buy an investment property:
Step 1: Determine the equity in your home
The first step is to determine the amount of equity you have in your home. To do this, subtract the amount you owe on your mortgage from the current market value of your home. The resulting number is the equity you have in your home that you can potentially use for a HELOC. Most lenders will allow you to borrow up to 80% of your home’s equity, but some may offer higher limits.
Step 2: Apply for a HELOC
Next, you’ll need to apply for a HELOC with a lender. The amount you’ll be approved for will depend on a variety of factors, including your credit score, income, and debt-to-income ratio. Many local credit unions and banks will offer competitive rates on HELOCs.
Step 3: Use the HELOC to buy an investment property
Once you’ve been approved for a HELOC, you can use the funds to purchase an investment property by either funding the down payment or buying the entire property (depending on price). Keep in mind that the interest rates on a HELOC are often higher than on a traditional mortgage, so be sure to consider the total cost of financing before deciding if a HELOC is the right option for you.
Step 4: Repay the HELOC
As with any loan, you’ll need to make regular payments on your HELOC. These payments can often be interest-only during the draw period, which tends to be the first 10-15 years. Be sure to make your payments on time to avoid late fees and damage to your credit score.
So there you have it! Using a HELOC to buy an investment property can be a great way to access the equity in your home and take advantage of real estate investment opportunities without having to wait to save up a downpayment. Just be sure to carefully consider the costs and risks involved, and work with a trusted lender and Realtor to find the right solutions for your situation and goals.
Happy investing!
