Equity in your Omaha home can be a valuable tool for building long-term wealth. By strategically tapping into your home's equity, you have various options to capture its value.

For instance, you can use it to pay off higher-interest debt or make home improvements that enhance your property's worth. Another option is to start a business or invest in the stock market, where potential returns may surpass the interest on your loan.

Another question people commonly have is whether or not they can use their home’s equity to purchase another property.

Can You Use a Home Equity Loan to Buy a House?

Yes, a home equity loan can be used to buy a house. However, it may not always be the best choice. A home equity loan is a second mortgage that allows you to tap into the equity you have in your home, which is the difference between what you owe and what your home is worth. It can be a viable option for purchasing a second home or an investment property, but there are important considerations to keep in mind.

The Upsides

When considering using your home's equity to purchase another property, it is important to determine whether you are buying a second home or an investment property. If your intention is to buy an investment property, utilizing a home equity loan can provide you with additional liquidity and potentially reduce costs.

  • Investing in real estate with equity has the following advantages:
  • You can increase your down payment. When you receive a home equity loan, the cash goes directly toward a down payment. Getting a lower interest rate and a lower monthly payment will allow you to be a more competitive buyer in the current market.
  • Since down payment requirements for second homes can be higher, a home equity loan is a more affordable and convenient way to finance a second home.

Your current home is used as collateral for a home equity loan. You benefit from lower interest rates as a result.

Using your home equity to buy an investment property can help you build wealth. It's important to keep in mind that second homes don't generate income like investments. As a result, you'll be tying up your home in a loan, then taking on another loan, so you need to be financially stable.

The Downsides

The downsides of using equity to buy an investment property do exist. These include:

  • Instead of having an asset, you will have a debt. You'll be converting the remainder of the home you own into a loan. This will mean you have a higher debt.
  • If the market shifts, you will be more vulnerable, as you now own two properties. This doubles your risk. You could end up being upside down in your mortgage if your property values decrease.
  • You could lose both properties if you default on your loan.
  • Since most home equity loans are second mortgages, you could end up having three loans, as you have to combine it with another loan to purchase the home.
  • Due to tax code changes in 2018, your interest payments will likely not be tax-deductible.

The conclusion is that using a home equity loan to buy a second home in Omaha can be a great option. You just need to weigh the pros with the cons and decide if the risk is worth it for your circumstances and goals.

Have your home needs changed in the past year? Perhaps you’ve outgrown your present home, or need to downsize to a more suitable home. If you’re ready to make a move, let’s connect and talk about all the amazing opportunities that are available to you!