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You don’t have to be a millionaire to buy a second home. Many people rent a vacation home, when they could easily use the equity in their primary home to purchase a second home of their own.
It’s simple: After consulting with a tax attorney and a reputable lender, you can take out a home equity loan to finance your purchase of a second (or even third) home for your family.
Usually, you can take out a larger loan at a lower interest rate using your primary residence (instead of financing the second home without using the equity you’ve built up in home #1).
Sometimes, home owners refinance their primary residence for more than what they owe – getting cash back to put a down payment on their second home or even pay cash for the home entirely.
You may even want to shuffle things around and use the equity in your first home to buy a second home – but then claim the second home as your primary residence. If you start acquiring more homes – a third, or even a fourth, you may run into tax trouble, so be sure you consult a tax attorney to help you set everything up in your best interest.
If you own your first home outright, then using the equity in it towards purchasing a second home can be a great financial strategy. But if you owe on the first home and use the equity to buy a second home, you need to make sure you can afford the added debt.
You don’t want to wind up with three payments you can’t afford – one on your original first home’s mortgage, a second for the equity loan, and a third for the new property. If you don’t own home #1 in full, at least make sure your equity loan can purchase the second home without you having to finance what’s left over after the down payment.
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