Many home owners often face the dilemma of not having adequate financial reserves to make a deposit while opting for a second property. For instance, a property may be on sale and for a home owner it could be a great asset. However, due to a lack of liquidity, home owners may not be in a position to make the deposit necessary to acquire the asset. Well, here is a legal way out of the issue by leveraging the value of an existing property.
Using home equity for leveraging
This is a simple concept that will help home owners beat the need for a deposit. It needs to be borne in mind that this option is actually available to individuals who own properties. Individuals who do not own properties will unfortunately not be able to use this option. It entails calculating the value of a home after taking into consideration the outstanding mortgage amount and the current value of the owned property. Here’s more about the nuances of leveraging.
Example of leveraging
Leveraging involves calculating the equity of the owned property. Let’s assume you are the owner of a property, wishing to buy another property. You will undoubtedly have one question in the back of your mind – can I buy a house with no deposit? To answer your question – Yes! you can. If your existing property is, for example, worth $400,000 with an outstanding mortgage amount of $150,000 dollars your equity value is the property value minus the outstanding mortgage amount. This effectively means that the equity value of your home is $250,000. You can now leverage 80% of the equity value of your property to use as a deposit for your acquisition of a second property. This translates into $200,000 which can be used as a deposit for your second property.
Cutting risks by leveraging the value
This exposes you to considerably lesser risks, as you will not be paying a deposit, but will be using the value of your home as a trade off to acquire additional assets. This way you will stand to benefit from the appreciation in value of the property without having actually spent that portion of the amount which is considered as a deposit through the leveraging method. This legal method of acquiring property has helped a large number of home owners to acquire wealth in a manner that is free from hassles and risks.
Avoiding payment of Lender’s Mortgage insurance
Another advantage of this system is the ability to avoid payment of Lender’s Mortgage insurance. The combined benefits of acquiring a property without risk or heavy investment and not having to pay the lenders mortgage insurance makes this option one of the most preferred for investors. The whole concept of leveraging is borrowing with the intent of maximizing the potential return on investment from the second asset. By keeping the risk level low, without spending additionally to raise funds, home owners can now look forward to making investments in prized property. At the end of the borrowing cycle, home owners can benefit from the investments that will begin to earn returns.