Buying a new home when you already own one is a challenging learning experience. You’re required to learn all about the real estate business, including how to finance a home. Financing a home can be a complex process, but the right lender and loan can help you get the best deal.
If you’re in the market to purchase a home, then you may feel like you’re an expert. But, did you know that you can finance your next home with a home equity loan? A home equity loan is extremely helpful in improving your loan terms by helping to pay the down payment.
Affording a down payment on a home is difficult for most. Various loan types make homes more accessible, but some loan terms are less than desirable. This is especially true when you’re also required to pay for personal mortgage insurance.
Personal mortgage insurance is required by most lenders when a buyer pays less than 20% as a down payment. When the buyer pays 20% of the home’s price, personal mortgage insurance is no longer applicable. To avoid paying PMI altogether, it’s essential to have at least a 20% down payment.
Benefits of Using a Home Equity Loan for Your Down Payment
There are many steps everyone needs to take to purchase a home. First, your credit and finances need to be in order. You also need to shop around for the best mortgage lender in your area.
Once you find a reputable mortgage lender, it’s important to get pre-approved. However, it’s wise to only get pre-approved when you’re ready to start making offers on homes. This is because a pre-approval only lasts for 90 days and requires a hard credit check each time you refresh it.
After that, your next step is to find a realtor. Your realtor shows you houses and writes offers. They’ll also help you throughout the home buying process by providing guidance and support.
Lastly, once you make an offer on a home, you’ll need to get an inspection. You may also have to negotiate the terms of the sale by including various contingencies.
This process can be draining for some. But, a home equity loan can help ease your stress by providing you with an adequate down payment. Consider the following benefits of using a home equity loan to help finance your next home.
1. Getting a Lump Sum of Cash
The biggest benefits of getting a home equity loan is the lump sum of cash you’ll receive. This lump sum can be used as the down payment for your new home. This allows you to feel more at ease when searching for a home knowing you can potentially get a better loan.
Getting a lump sum of cash also eliminates the need to save up your money over time. Saving for a down payment can be a long-term endeavor, which could delay your next move.
2. Fixed Interest Rates
Home equity loans come with fixed interest rates. This means that the interest rate you receive after securing the loan will stay the same even if market interest rates change. While you repay the loan, the interest won’t vary, which means that you’ll pay the same amount each month.
3. Low-Interest Rates
Another benefit of home equity loans is they tend to have low interest rates. This is because home equity loans are less risky for a lender. Your lender will be confident of how much equity you have in your home, which makes it a safer investment overall.
Low-interest rates also mean that you’ll be paying less over time than other types of home loans, such as a bridge loan where rates can be 10% or higher. Part of your loan payment will go towards paying your interest each month, so if your rate is lower, this means your overall monthly payment will be lower.
Interest on home equity loans can also be beneficial to your taxes. When you apply the loan amount to buy, build, or renovate/improve your home, the IRS allows you to claim the interest as a tax deduction. This will lower the taxes you pay, which can be extremely beneficial to your wallet.
5. Move Faster
When you know you want to move, you want to move as quickly as possible. It can be downright depressing to stay in a home that no longer works for your family or meets your needs. A home equity loan allows you to get into your new home faster.
This is because you won’t need to worry about saving up again for another down payment. Simply apply for a home equity loan, get approved, and receive a lump sum to purchase your new home.
6. Purchase Your Dream Home
Home equity loans allow you to purchase your dream home. They grant you the financial means to purchase the home you truly want. You won’t need to wait to save up for a down payment and you won’t have to pass up on the perfect house that just hit the market.
Home equity loans give you the freedom to choose and the freedom to make an offer a seller can’t refuse.
7. Fixed Monthly Payments
Fixed monthly payments help us plan ahead. This type of certainty is crucial when creating a budget and sticking to it. A home equity loan allows you to know exactly what you’re going to pay so you aren’t surprised later on.
Finding the Best Home Equity Loan Lender
If you’re convinced that a home equity loan is right for you, then the next step is taking action to find a lender. Home equity loan lenders aren’t all equal, however.
To get the best home equity loan lender, it’s important to get familiar with the various options you have. Check out what customers have to say about their loan experience and the company.
Next, it’s important to speak with the home equity loan lender directly. When speaking with the company, ask them about any hidden fees or charges. You should also thoroughly read through the company’s loan policies.
Customer service is also essential when selecting a home equity loan lender. The company you work with needs to be responsive, friendly, and competent.
Homeward offers a solution that allows you to buy your new home before selling your current one without needing a loan. Learn more about How Homeward Works.
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