Pulling equity from your primary home to fund a down payment on a second one is a leveraged bet on real estate — with your residence as the collateral.
You take a HELOC or home equity loan against the primary home, use the proceeds as a cash down payment, and finance the balance of the second property with its own mortgage.
You now carry three payments and two properties' worth of price exposure.
Model six months of vacancy, a major repair, and a 15% price decline at the same time. If that scenario threatens the primary home, the deal is too large.
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Calculate my equityYes. Second-home financing is usually cheaper than investment financing, but occupancy rules are strict and enforced.
It is a common tactic in competitive markets, but only workable if you can service the line if the exit takes longer than planned.
Part of The Homeowner's Guide to Home Equity.
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