Submitted by Corrsta t3_11eo603 in personalfinance
I currently own a 1BR co-op and will be looking to upgrade to an actual house at some point in the future. I have a significant amount of equity in the property, so much that it would take a very long time to save up an equal amount of cash to fund a down payment for my next purchase.
This is my first home and I'm unfamiliar with what my options are. I always thought people saved up for a down payment, purchased a new home, sold their old one, then put any profits into the new home somehow.
Is this the standard and/or recommended process? Is there a way to use your existing equity towards a down payment before selling? If so, are there risks associated with that?
fawningandconning t1_jaf4mtk wrote
As you own it outright, yes, it's common to use that to get a HELOC to have enough cash to buy a new home, and then sell your current home. It can be complicated to accurately time everything to line up perfectly so you're under contract and the buyer of your home is closing while you yourself are closing on your new home.
The only risk would be that you need to keep your DTI in check, as you'll be evaluated for your ability to pay your new mortgage with the monthly payment due on the HELOC, regardless if you'll immediately pay it off with the proceeds of the home sale.