Taking Out A Home Equity Loan To Buy Another House: FAQs
To fund a property purchase, should I get a lump-sum home equity loan, a HELOC or a cash-out refinance?
A home equity loan offers borrowers a one-time, lump-sum payment. A home equity line of credit (HELOC) works like a credit card and has a revolving credit limit. During the HELOC’s draw phase, you can access funds, as needed, for any purpose. While HELOCs can offer more flexibility than home equity loans, they have higher closing costs and variable interest rates, which may mean paying more over time. Rocket Mortgage® doesn’t currently offer home equity lines of credit.
Another option to consider is a cash-out refinance. With this financing option, you take out a larger mortgage that pays off your original mortgage and allows you to pocket the remaining balance in cash. Because it’s a refinance, not a second mortgage, a cash-out refinance won’t create an additional mortgage payment, but it can extend the term of your loan.
There’s a lot to consider when choosing between a HELOC and a cash-out refinance. If you need a lump sum for a down payment or a large expense, a cash-out refinance or home equity loan will probably make more sense.
When can I sell my house after I take out a home equity loan?
There’s no set time limit to sell your house after taking out a home equity loan. However, you must pay off any liens on the home before you can sell the property, including your home equity loan because your home acts as collateral for the loan.
If you sell while you’re still making payments on your primary mortgage and home equity loan, you’ll have to pay off both liens with the proceeds from the home sale. For example, suppose you sell your home for $350,000 and owe $150,000 on your mortgage and $50,000 on your home equity loan. What you owe on the liens will be deducted from your proceeds, leaving you with $150,000 in profits.
Will a home equity loan put my mortgage underwater?
An underwater mortgage happens when a home loan’s principal balance exceeds the home’s appraised value. This scenario typically occurs when a property’s value falls as a homeowner repays their mortgage. While it’s not likely a home equity loan will directly lead to an underwater