How Home Equity Fuels Your Next Move

Selling your home is as much of a lifestyle decision as it is a financial decision. Like any other investment, you want to make sure that you're making financially responsible decisions every step of the way. One option that you have when selling your home is to use your current equity to finance your next move. Research shows that more and more homeowners are gaining equity in their homes regardless of state. By paying the equity in your current home towards purchasing a new home, you can achieve your real estate goals sooner than later.

What is Home Equity?

The equity in your home is its current value minus the remaining mortgage debt. As you pay your monthly mortgage, you grow the equity in your home. For instance, If you purchased your home for $200,000 using a mortgage loan and only have $50,000 remaining on the loan, your home equity is $150,000.

How Can I Use My Existing Equity?

As you consider selling your home, you likely already have another real estate goal in mind. Whether you're downsizing or purchasing a home for your growing lifestyle needs, you'll need to create a plan for how you're going to buy a new house. Instead of using your savings for another down payment, you can leverage the existing equity in your home to fund the purchase of your next home. There are a few ways that you can use your existing equity when selling your home:

• You could use the existing equity as collateral for your next home.

As you search for a lender to secure a mortgage for a new home, they may allow you to use the existing equity in your current home as collateral. One advantage of this option is that many lenders will match the rate of your original mortgage.

• You could use a cash-out refinance.

The option allows you to pocket the equity as cash to put towards the new home. Prior to selling your home, you may have refinanced your mortgage. This option works similarly, allowing you to use as much as 85 percent of the home's appraised value in equity.

• You could take out a HELOC.

A HELOC, or a Home Equity Line of Credit, gives you a set balance that you can use as much as necessary. For instance, if your HELOC is for $20,000, you can choose to only use $10,000 of it. This is beneficial because you'll only pay interest on what you use, not the full amount.

• You could finance all of your new home's purchase price with your equity.

A mortgage lender may allow you to accept a loan for 80 percent of the purchase price and then take out a home equity line of credit for the remaining 20 percent. After selling your home, you'll then use the profits to pay off that home equity line of credit.

Is using your equity to fund a new house purchase the right decision when selling your home? That depends on how much equity you have and how much you need to finance for a new home. Speak with your real estate agent to determine if leveraging your equity when selling your home is right for you.

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