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3 Ways a Home Equity Investment Makes Moving Homes Smoother

4 min read
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picture of author, Hometap TeamBy Hometap Team on October 18, 2022

Traditionally, homeowners only had a few financial options to pick from when it came to moving from one home to another. These included temporarily juggling two mortgages with a bridge or other loan (and taking on debt), or selling their home prematurely to gain access to their equity and finding short-term accommodations at hotels, rental properties, or family members’ homes until moving into the new home. Some homeowners have even gone as far as dipping into emergency savings or their retirement fund to cover the cost of two mortgages.

Timing the transition between houses can be tricky, but planning ahead to ensure everything goes smoothly and according to schedule is essential. Home equity investments are a fairly new option that can alleviate some of the pain points that come along with moving between homes in a few different ways while potentially saving you money as well.

A home equity investment is a loan alternative that allows you, the homeowner, to access a portion of your home’s equity in exchange for a percent of its future value. Unlike a loan, you receive the cash upfront, with no monthly payments and no interest. Here are some of the ways homeowners can leverage a home equity investment when buying and selling.

Fund Renovations and Repairs on Your Current (or Future) Home

If you need to renovate your home prior to putting it on the market — something as small as making several minor repairs or remodeling your entire kitchen to add value — a home equity investment can allow you to tap into your equity to make the necessary updates without taking out a traditional home equity loan or adding debt. Then, when you sell, the investor receives a previously agreed-upon percentage of the sale price.

Similarly, if the home you’re purchasing needs work before you move in, you can also use the equity from your first residence to cover those improvements before you sell it, all without dealing with interest or monthly payments.

It’s important to note that while you can receive a home equity investment for your new property, you’ll typically need at least 25% equity in the home before you can qualify.

Pay for Moving Expenses and Closing Costs

Beyond the purchase price (which can end up being significantly higher than the listing price in today’s competitive market), buying and moving into a new home certainly isn’t cheap. There are the costs of transporting your furniture and housewares, plus the costs and fees that you’ll encounter at closing time. A home equity investment can help you pull cash from your first residence — before it sells — to put toward these expenses without paying out of pocket.

Maintain Two Mortgages, Debt Free

Finally and perhaps most importantly, a home equity investment can help you manage the mortgages of both your first home and your next one without taking on debt in the process. Often, homeowners use home equity investments as a bridge loan alternative when they need to gather enough money for a down payment to secure the property but haven’t sold their first home yet.

While the best option for you always depends on your personal financial situation and goals, a home equity investment can be a better choice than a bridge loan for several reasons. While bridge loan approval is relatively easy and funding is quite quick if you’re in a pinch — typically three to five days — that convenience usually comes with high interest rates and fees. And, of course, the loan still needs to be paid back on top of your existing mortgage(s), potentially adding more stress to an already tense time. 

Most home equity investment companies don’t have prepayment penalties, making it more convenient to settle the investment whenever it makes the most sense for you.

Tap into your equity with no monthly payments. See if you prequalify for a Hometap investment in less than 30 seconds.

You should know

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

Hometap is made up of a collaborative team of underwriters, investment managers, financial analysts, and—most importantly—homeowners—in the home financing field that understand the challenges that come with owning a home.

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