How to Use Your Home Equity to Buy Your Next Home

So how exactly do we use our home equity in our current house to buy the next house? I mean, obviously that's what we're going to do. We're going to take the money out of here and we're going to go spend it over there. Most of us are going to do that. We've talked about scenarios where you could buy before you sell, or you might be able to own two, or you might keep this one and buy another one. This is what we're talking about is getting the money out of this one to put it in to that one. How actually does the money move? How does this work? Right. So first of all, what is home equity? Most of us assume we know, and you may not know exactly. Some of us don't know. So here's a very simple explanation. It is the amount of money in your home, the value in your home above what you owe. And so what I mean by that is what would it sell for minus what you owe on any loans, any debt, and any expenses tied to getting it out. That can be taxes, can be any sort of transfer fee, title fees, agent commissions, any required insurance payments or anything like that. So it's what your house is worth, which is determined by what somebody will pay you for it, minus what you owe, minus any fees related to getting that money out. A lot of people forget that last part. They don't think about taxes or insurance or mortgage company payoff fees or anything like that. And so they end up with a little bit less than they thought. OK, so that's what your equity is. It's what it's worth minus all the expenses, paying off debt, paying off any expenses to getting it. OK, then once you determine exactly how much you have, OK, what is my actual net equity? What's the amount I will walk away with from this? We talk about how could I get to it? So obviously you can sell the property. That's one way to get it. Sell it. They're going to wire you the funds or give you a check for what you get out of your property equity. OK, another way to get it without selling it is actually to borrow against it, to get a home equity line of credit, to get a cash out refinance. So sometimes people will do that, get the equity out of the house before we sell it so we can go buy this other house. We talked about bridge loans and some short term lending options in an earlier video in this series of how to buy and sell at the same time so we can pull that equity out sometimes before we've sold it, buy the new house and then pull out whatever's left when we sell it. So, you know, you could sell it, you could borrow against it, you could draw it out or you can do a little bit of both. Right. So those are ways to access your equity. Cash out refinance, home equity line of credit or sale. And there's a couple of variations of each of those. Now, what's the timing like to get the money out of one and get it into the other? Usually we're talking about hours or days, not weeks or months. OK, so hours is aggressive, but there are I have seen this happen plenty of times where in the morning I close on the sale of my old house and that money is wired to the title company. And in the afternoon I close on the purchase of my new house. And that money basically stays at the title company. It stays in their account and that can be moved over to the seller of the house I'm buying. So it comes from the buyer of the one I'm selling, gets held in the same spot and then moves over to the seller of the one I'm buying. Usually it takes one extra step. So it goes to my bank and then back to the title company and to the sellers. So normally that can happen within one or two days, just depending on if it's a holiday or a Friday that you could add a day or two to that. We're talking hours or days. This usually doesn't take a ton of time to get the proceeds out of our sale. Talk to the title company or whoever's closing the transaction could be an attorney coordinate. Where do I want that money held? Where do I want it sent? How soon do I want it sent? What type of consent for me do you need before you can send it? And then when is my down payment or my fees due for the other side? And where does it need to go? We're not always at the same title company might be selling at this one and buying in one could be in multiple different states or cities or zip codes or doesn't matter. But normally this is a matter of hours or days needs a little preparation, needs a plan and we can get that done. There are a couple of little common mistakes, common misconceptions, some myths about this. And number one is that not all of our equity is immediately available. Sometimes it's going to take a few days. Sometimes funds, dollars need to be seasoned, need to be proven to be fully in our account before they can go out. Sometimes there's requirements of 24 hour turnaround, things like that. These are typically pretty minimal, but not everything is going to be like in my hand on the day of sale immediately when I want it. So we need to understand that. Also, online estimators or calculators of equity are just usually wrong. They're usually not way, way wrong, but they're usually missing some fees or some timing or they might be a little high or a little bit low on rounding. So just be careful trusting those numbers. And then finally, equity doesn't mean cash in hand. Usually it's a wire transfer, could be a certified check. It might come in multiple chunks for multiple places. You might have some of your like the escrow money that you had with your mortgage company that was there for insurance or taxes that might be refunded to you. So that was part of your overall equity. But you may not get it back for 30 days or so. Usually that's a smaller piece of it might not have even been calculated into equity, but it's money tied to your home that you'll get back when you sell it. But it might take a couple of weeks for some of that tax and insurance money that had been saved with your mortgage servicer. So just a couple of things that people get wrong sometimes or that causes their dollar amount expected to be high or low even sometimes. So this is totally doable. We can get equity out of one and get it into the other very, very quickly. We just need a plan and understand what's real and how these things work with different banks, different lenders, different title companies, different cities or states or different homes. We can do it for you. We do it all the time. Look forward to helping you through your process.