Saving up a 20 per cent deposit for a home loan can be difficult. However, if you’re already a home owner, it’s possible to access the equity in your current home as a deposit on another property. But first you need to understand what equity is and how it’s possible for you to access it to put towards your real estate goals.
What is equity?
Equity is the difference between the value of your home and how much you still owe on your mortgage. For example, if your mortgage was $400,000 and you still owe $220,000 on it, your home equity value is resting at $180,000. This can be used as security when it comes to taking out other debts, or as a source of wealth for further property investment.
But there are some limitations. You won’t be able to access all of your equity, simply because you’re borrowing against your home and most banks won’t allow for the full value of the property to be retaken out. Often you’re limited to a maximum of 80 per cent, in case the value of the property dips and the security itself becomes worth less than the customer owes.
Any potential barriers?
One thing to keep in mind, just like with all financial lending scenarios, is that the bank ultimately has the last say in the decision. Your income, how many children you have, any outstanding debts and a wide variety of other factors stand between you and your equity.
Utilising your own equity to purchase property is a potential avenue to consider. This could be a great way to begin your own investment property portfolio, propelling you into the realms of investment ownership and helping to get you on your way to earning profits from the market.
