Using Home Equity to Seize Opportunity

By | November 19, 2013

Now can be a great time to purchase a property development. The economy is still lagging a bit in terms of recovery, so home prices are relatively low, and it’s very easy to purchase a property and see a big return by utilising it as a rental property, or selling it for a significant return on your investment.

Despite the prime purchasing opportunities, it can be difficult for a first-time developer to find the capital necessary to begin the process. Although you may find a great property, you’ll have to consider whether a bank is going to see you as an ideal loan candidate, and everything from the amount of money you make as a salary each year, to other outstanding loans, can play a part in the bank’s decision.

One source of untapped capital is often found in home equity. The first step to utilising home equity to purchase a development property is to understand how much equity you have in your home, which is simply the difference between how much your home is worth and how much you own of your home, or how much remains on your mortgage. By using your home’s equity, you’re providing yourself with the opportunity to purchase a development property with cash, which will make the buying process much easier.

Despite the advantages of using equity to make the purchase of another property, there are downsides as well. One of the biggest factors to consider is the amount of debt you’ll be responsible for repaying. If you borrow against the equity of your home, and fail to repay the required amount, you risk losing not only the development property, but also your primary residence. It’s also important to understand fees you’ll be responsible for, and how these will affect your payments.

If you adequately understand the risks associated with using your home’s equity to secure capital, it can provide a great investment opportunity, in spite of the potential downsides.

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