Mortgage Rates Are Rising. How to Put Together Enough Cash to Buy a Home.
by Kenny on December 5, 2022
Home Equity
Current homeowners have a handful of options for using accrued equity in their existing home to raise cash for a new purchase. One is to tap a home-equity line of credit on the existing home, a tactic for when clients are looking to downsize from a more valuable property to a less costly one
“If you already have a fairly sizable mortgage on your existing home, you’re only going to get so much out of that home-equity line of credit,”says Langburt. “But if you own it outright, you may be able to get enough money to put in a very competitive bid.”
Tap Your Portfolio’s Value
For prospective buyers with money in investment portfolios, there are a few options for using those assets for a home purchase. If you choose to cash out your equities, tax considerations become paramount. Investors who want to go that route might choose to sell equities that have appreciated as well as those with capital losses that can be harvested to offset the gains.
Margin loans are another popular option for investors. For example, someone with $1 million in equities who is buying a $400,000 home “can borrow up to 50% of their investment portfolio as a loan and then purchase a home all-cash,” The borrowers would then pay back the loan after selling their former home, negating the need to sell any stocks.
If you’re lucky enough to have friends or family members willing to help, taking a loan from a close personal contact could translate into savings. “You can actually borrow money from family at a very low interest rate. If you’re interested in using a family loan, you’ll need to involve some professionals.
If a Cash Deal Isn’t An Option
Yes, the average rate on a 25-year fixed-rate mortgage is near a 20-year high, but there are many different types of mortgage loans, and some are less expensive. As rates have risen, buyers have increasingly turned toward variable-rate mortgages, or , which have lower rates.
