Why use equity for your next down payment
Many homeowners have built more equity than they've saved in cash. If that equity is tied up in the home you're leaving, you may not be able to make a strong offer on the next one until the first one sells. Tapping it early lets you shop on your schedule instead of the market's.
The trade-off is more debt for a while, secured by the home you plan to sell.
Your main options
Each path has a different cost, timeline and level of risk.
- Home equity loan: a fixed-rate second loan on your current home. Your first mortgage stays as it is, and you pay off both when you sell.
- Cash-out refinance: replaces your current mortgage with a larger one and pays you the difference. This makes more sense if today's rates are at or below your current rate.
- Bridge loan: a short-term loan against your current home from some lenders, often with higher rates and fees. CapCenter doesn't offer bridge loans.
- Sell first: sell, then rent or use a rent-back while you buy. No second payment, but you may move twice.
Timing: borrow before you list
Lenders look closely at homes that are for sale, because a loan on a home about to be sold won't last long. Many won't make a home equity loan on a property that is listed, or was listed recently.
For CapCenter home equity loans, the home can't have been listed for sale in the six months before you apply, and your first mortgage must have been in place for at least six months before the new loan closes. If you think you'll need equity for your next purchase, talk with a loan consultant before the sign goes in the yard.
A hypothetical example
Your current home is worth $450,000 and you owe $200,000. A $100,000 home equity loan, taken before you list, could fund 20% down on a $500,000 home. When the current home sells, the sale pays off both the first mortgage and the home equity loan.
This is an illustration, not an offer. Your actual amount depends on your home's value, your credit and your income.
Plan for two payments
When you apply for the new mortgage, the lender will usually count the payments on your current home, including any new equity loan, along with the new home's payment. That can affect how much you qualify for.
Build a cushion for a slower sale. If your home takes a few extra months to sell, you'll carry both homes' payments, taxes, insurance and upkeep for that time.
What to compare before you choose
- Total cost: rate, fees and how long you expect to carry the loan
- Your current mortgage rate compared with today's rates
- How long homes in your area usually take to sell
- Whether you can qualify for the new mortgage while still owning the current home
- Your comfort with carrying two payments if plans slip
Work with one team on both sides
Buying and selling at the same time works best when your lender and agent share one plan. Where we offer realty services, CapCenter's loan consultants and REALTORS® can coordinate the timing of both. If you buy with CapCenter's Realty Team, you may get a Realty Purchase Credit of up to 0.5% of the purchase price (see Offer details). CapCenter home equity loans come with ZERO Closing Costs (restrictions apply).
