Equity Release

An Ingenious New Way for Using Equity to Buy a New Home

Tom BurchnellReviewed by

Using equity to buy a new home is a great strategy, whether you’re hoping to trade up into a bigger house or downsize your monthly expenses. 

Pulling together the down payment for a new house while getting your current property ready for sale is a double burden. At the same time, you’ll have to manage moving expenses. Buying a new home with equity can help keep your savings intact while you cover all these costs.

If you’re wondering how to buy a new home with an existing mortgage, we’re here to help. Here are some common ways of using equity to purchase a new home: 

Home Equity Loans

A home equity loan is often the first option homeowners explore because it’s a familiar tool. A home equity loan is a bank loan that uses your house as collateral, much like your original mortgage.

Advantages

Home equity loans:

  • Offer some of the lowest rates available to consumers.
  • Are available through your existing bank relationship.
  • May include interest that is tax-deductible, depending on how you use the funds.

Disadvantages

With a home equity loan,

  • You risk your current home by pledging it as collateral. If you can’t sell and you lose your income, you could forfeit your house.
  • If the market declines and you can’t sell the house for as much as you borrowed, you’ll be in debt.
  • Your lender may dictate terms you don’t like, such as not allowing you to rent out your house while you look for a buyer.
  • Application fees, appraisal fees, and underwriting fees can be high.
  • If you’re still paying on your mortgage, you’ll have to afford both payments each month.

Terms, Conditions, and Requirements

  • Loan terms range from 5-30 years.
  • Interest rates for home equity loans are fixed.
  • You can usually borrow 80–90% of your home’s equity.
  • You need a good credit score. Most lenders look for 700 or above.
  • Your debt-to-income ratio should be 40% or less.
  • You’ll need proof of income and ability to repay the loan.

Home Equity Line of Credit

Another tool for using equity to buy a new home is a home equity line of credit, or HELOC. Like a home equity loan, you apply for a HELOC through a bank and pledge your house as collateral. 

Advantages

A HELOC:

  • Allows you to take out debt as you need cash, so it’s a flexible tool if you’re not sure how much money you’ll need.
  • Comes with low rates compared to personal loans or credit cards.
  • Is available through your existing bank.
  • May include interest that is tax-deductible.
  • Provides flexible repayment options.

Disadvantages

Some disadvantages of using a HELOC include:

  • As with a home equity loan, you may risk losing your existing house.
  • Variable interest rates mean you can’t be sure of your total expense in advance.
  • If you’re not disciplined, having a high credit limit could encourage you to borrow more than you need — or can repay.
  • If you’re still paying on your mortgage, you’ll have to afford both payments each month.

Terms, Conditions, and Requirements

  • Loan terms range from 5-10 years.
  • Interest rate is variable.
  • You can usually borrow 80–90% of your home’s equity.
  • You need a good credit score. Most lenders will want 700 or above.
  • Your debt-to-income ratio should be 40% or less.
  • You’ll need proof of income and ability to repay the loan.

Bridge Loans

Another method of using equity for a new home is a short-term loan called a bridge loan. These are designed especially for homeowners who are managing the transition from one house to another.

Advantages

Bridge loans provide:

  • Short terms with clear end dates.
  • Payments that can be deferred until after you sell your house.

Disadvantages

Disadvantages of bridge loans include:

  • Higher rates than a home equity loan or HELOC.
  • Smaller loan amounts.
  • Multiple payments if your loans overlap.

Terms, Conditions, and Requirements

  • Loan terms range from 6 months to 3 years.
  • Rates can be fixed or variable.
  • You can usually borrow 80% of your home’s equity.
  • You need a good credit score. Most lenders will want 700 or above.
  • You’ll need proof of income and ability to repay the loan.

EasyKnock’s MoveAbility Program

EasyKnock’s MoveAbility is an innovative method of using equity to buy a new home. This sale-leaseback option lets you sell your house for cash and continue to live in it as a tenant for up to a year. 

Advantages

EasyKnock’s MoveAbility:

  • Lets you stay in your home for up to 18 months while you make repairs and shop for your dream home.
  • Is fast — get cash in hand in just 13 days.
  • Lets you use funds for down payments, home repairs, moving expenses, and more.
  • Helps you pay off your existing mortgage, which will help you qualify for a new one.
  • Allows you to choose when you’re ready to list your home.
  • Comes with low fees: you pay 1.5% of your home’s value and then pay market rent.

Disadvantages

Some drawbacks of the program include how:

  • You give up any property appreciation that happens after you become a renter.
  • As a renter, you may need approval to make significant changes to the house.
  • Your rent may be higher than your mortgage payment.

Terms, Conditions, and Requirements

  • MoveAbility is only available to people selling single-family homes, condos, or apartments.
  • With the program, you gain access to up to 75% of your home’s equity
  • You’ll pay market rent based on similar properties in your area.
  • You can renew your lease for up to 12 months with a renewal fee of 1% of the total purchase price every six months.

If you’re curious about this innovative option, read more about the MoveAbility program, and find out your home qualifies.

The Final Word

If you want to buy a new home with an existing mortgage or thinking of “can I use home equity loan to buy another house?” your options include three types of loans or a sale-leaseback program like EasyKnock’s MoveAbility:

  • Getting a loan means going through a bank lending process and then dealing with double payments. 
  • A sale-leaseback option like MoveAbility buys you time to shop for the perfect house while giving you the cash you need for home improvements and a down payment. 
Tom Burchnell
Product Marketing Director

Tom Burchnell, Director of Digital Product Marketing for EasyKnock, holds an MBA & BBA in Marketing from University of Georgia and has 6 years of experience in real estate and finance. In his previous work, he spent time working with one of the largest direct lenders in the SouthEast. 

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