If you are a homeowner looking to buy a second home, you will need to have equity in your existing property in order to purchase a second. Without that or a significant cash injection along with enough income to support the additional debt, you won’t be in a position to start expanding your portfolio.

But before we get ahead of ourselves, we’ll start by explaining the basics.

What is equity?
Equity is the difference between what your property is valued and what you owe on the loan. Realistically, the portion that you can use without incurring Lender’s Mortgage Insurance is the difference between what you owe and 80% of your property’s value. For example, if your property was valued at $500K and you owe $300K, the equity you could access is $100K to keep the loan-to-value ratio under 80%.

I have enough equity. What’s next?
If there is enough equity in your property to put towards your new purchase, it would need to be refinanced or an additional loan is taken out against it to access these funds. We commonly call this cashout for future investment.

You will need significant equity in your property to be able to achieve this and or you may need to add your own savings to make the purchase.

Calculate in other considerations
When buying a new home, whether it’s your first or second, there are additional costs involved in a new purchase such as stamp duty, legal fees, and property adjustments that need to be factored in. Also, if you need to borrow more than 80% of the new property value there will be an additional cost for Lender’s Mortgage Insurance.

Essentially, your available equity and your borrowing capacity will dictate what your next purchase could be and that’s where we step in.

Better Call Paul
We can work all the details out for you to check the viability of expanding your property portfolio. To get started, give Paul a call on 0450 573 336.