It can make sense to use a home equity loan on a property you already own to purchase another property. We've seen buyers use existing equity to make a down payment on a second home, an investment property, or in cases where one person is buying a property for someone else (a child, a parent, etc.).
Use Your Equity
Funds are made available at the issuance of the home equity loan, and then turned around and applied to the new purchase. Buyers can use a home equity loan for the entire amount of a purchase. In that case, the transaction can move almost as quickly as a cash (no mortgage) transaction. Almost. The bank will still require an appraisal of the property being collateralized for the home equity loan. Also, and this is important to remember, there is a MANDATORY three business day waiting period from the time a home equity loan is approved and when the funds can be available. The intention of this federally required rescission period is so that people don't rush into things. As a buyer using a home equity loan, it's important to know that if the closing on the second property is scheduled for the 15th, the closing for the home equity loan has to be by the 12th (assuming that's a business week). There's just no way around it. You can't waive or sign off on that right. You've just got to wait the three business days.
So, anyone thinking of using accumulated equity in an existing property to purchase, or help purchase another property, just remember to pad in that extra time.
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By Ray Mikus