3 times to use a home equity loan to purchase a second home

Do you think about buy a second home? Perhaps you live in a cold climate and want a home in a warmer area during the winter months. Or maybe you have adult children who have moved away and you would like to be near them during the holidays.

A traditional mortgage is an option for purchasing a second home, but your primary residence could also help you. For example, you may be able to access your home equity with a home equity loan to get the money for a down payment or cover the entire cost of purchasing a second home.

Home equity loans are often a wise option to consider because you can borrow large sums at a competitive rate. And since the average owner currently has approximately $193,000 in leverageable equitya home equity loan can be an attractive way to purchase a second home now.

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3 times to use a home equity loan to buy a second home

Here are three times it makes sense to use a home equity loan to purchase a second home.

When you have a lot of home equity but little cash flow

The amount of money needed to purchase a second home is a significant barrier for many people. And, if you go the traditional mortgage route, you’ll need enough money to make a down payment and cover your closing costs. This often means having tens of thousands of dollars or more, depending on the price of the home and other factors.

A home equity loan can be helpful if you don’t have the money to purchase a second home. You can use the funds to put a down payment on the second home you purchase, for example. And, depending on how much equity you have, you might have enough to cover the costs as well. closing costs for your second home.

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When you need a fixed monthly payment

There are several ways to finance the purchase of a second home with your home equity. Some, like home equity loans, come with fixed interest rates. Others, like Home Equity Lines of Credit (HELOC), have variable rates which can change over time. If your goal is to have a consistent monthly payment amount on the money you borrow against the equity in your home, a home equity loan is usually the best option.

“Fixed-rate home equity loans provide much more certainty than a variable-rate HELOC because homeowners can know exactly what their monthly payment will be before taking out the loan,” says Darren Tooley, senior lending manager at Cornerstone Financial Services. “This allows the borrower to budget and know exactly what to expect on a monthly basis.”

When you know exactly how much money you need

Home equity loans allow you to borrow against your equity with a lump sum loan. As such, it may make sense to use a home equity loan to purchase your second home if you know exactly how much money you will need to make the purchase.

For example, you may be purchasing a new home that likely won’t require repairs in the near future. Or, you may have a clean inspection report and do not plan to make any updates or changes to appliances, fixtures, or features in the home.

In these cases, you probably won’t need to borrow additional money against your home equity for renovations or repairs, so the costs are relatively fixed in terms of how much you need to borrow. In turn, a home equity loan may make more sense than other options.

Compare your home equity loan options to find the loan that’s right for you today.

The essential

If you are looking for a second home, it may be wise to use a home equity loan to finance your purchase. This is especially true if you have a lot of equity but little cash flow, want a fixed monthly payment amount, and know exactly how much money you’ll need to purchase your second home. Compare your home equity loan options now.