Many people interested in buying an investment property aren’t aware that they could potentially use the equity in the home they live in to buy their first investment property. Let’s take a look at some of the commonly asked questions posed by first time investors.
What is home equity?
Home equity is simply the difference between your property’s current market value and any money you owe on it (what you owe on your mortgage).
How can use my home equity to help me finance an investment property?
With property values on the rise many people are surprised to learn that the increase in their property value over time combined with the money they’ve been paying off on their mortgage has resulted in a significantly higher equity level than they thought they had.
Most lending institutions will consider lending up to 80% of your home’s current value minus any debt still owing on it. Let’s say your home is worth $500,000 on today’s market and you owe $200,000 on it. That means your available equity is $300,000. Based on the 80% rule:
Your home’s current value ($500,000) x 80% = $400,000
Less the amount you owe of $200,000 = $200,000.
So in this scenario you could potentially use $200,000 in equity to put towards the purchase of an investment property. Of course you would need to show your lender that you could afford the repayments on an investment home loan as well as continuing to pay your existing mortgage. But taking rental return into account, many people find this to be more achievable than they imagined.
If you are interested in a free property appraisal on your home, give us a call or send us an email and we’ll be more than happy to come out and conduct one for you as well as have a chat about all the possibilities.
As everyone’s financial circumstances are different, we recommend you have a chat with a financial adviser and your lender about the possibility of investing in property using the equity in your home.