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Understanding Home Ownership - The Beginning

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  1. Module 1: Understanding Mindset
    9 Lessons
    |
    1 Quiz
  2. Module 2: Understanding What you want your money to do for you?
    6 Lessons
    |
    1 Quiz
  3. Module 3: Understanding The Types of Real Estate Investments
    7 Lessons
    |
    1 Quiz
  4. Module 4: Understanding The Resources
    11 Lessons
    |
    1 Quiz
  5. Module 5: Understanding The Finance
    15 Lessons
    |
    1 Quiz
Module 5, Lesson 11
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Understanding Home Equity Loans and Lines of Credit

Anthony October 6, 2020
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Home Equity Loans and Lines of Credit

Many investors choose to tap into the equity in their own primary home to help  finance the purchase of their investment properties. Banks and other lending  institutions have many different products, such as a Home Equity Installment  Loan (HEIL) or a Home Equity Line of Credit (HELOC) that allow you to tap into  the equity you’ve already got. For example, an investor may purchase a  property, but instead of going through the normal hassle of trying to finance the  investment property itself, they can instead take out a HELOC on their own  home to pay for the property.

In order to obtain a home equity loan or line of credit, you must first have equity in your home. Banks will  typically only lend up to a certain percentage of your home’s value in total. This percentage differs between  lenders, but it is not uncommon to find a lending institution that will offer to lend up to 90% of the value of  your home.

Real World Example:

John’s current home is worth $100,000. John visits with his local bank and learns that they will allow up to  90% debt on that home. Therefore, John can borrow a total of $90,000 on the house. If he already owes $50,000 on a first mortgage, the home equity line or loan would be capped at $40,000 to ensure the total  loans didn’t exceed 90%.