Share
© whyframestudio - iStock / Getty Images Plus
Some homeowners are turning to the equity in their current home to fund their next real estate transaction. But the move isn’t without risks.
Most homeowners who bought a home before 2020 have seen rapid appreciation and rising equity in their homes. A cash-out refinance is allowing them to use that equity to help fund their next purchase. They can take out a new mortgage loan for more than what they owe, and then use the cash to buy another property or to make a down payment on a new one.
Cash-out refinances have traditionally been used to pay off debt or fund home renovations or repairs. But homeowners are finding they can also leverage them to complete their next home purchase.
Homeowners with 20% or more equity are likely to be eligible for cash-out refinancing.
Laura Agadoni writes for Motley Fool about how she used a cash-out refinance to fund her last rental property.
But she acknowledges there are some risks to using cash-out refinances to buy real estate. She writes those can have higher costs, between 2% and 5% of the new loan amount. Also, borrowers will be starting a mortgage from scratch and homeowners may be putting their home at risk if they suddenly can no longer make payments.