Before beginning to explain how to use your equity, let’s define the meaning of equity. In short, equity is the difference between the current value of your home and how much you owe on it. For example, if your home is worth $800,000 and you owe $300,000, your equity is $500,000.
The great thing about this hidden treasure is that you can borrow against it to fund life’s big purchases, such as buying an investment property, remodeling your home, or starting a business.
Lenders will typically lend you upwards of 75-80% of the value of your home less the debt you still owe against it. These percentages may have changed since the latest economic disruption, because there is concern that values may fluctuate a little. But still it can be a strong investment and a smart move.
When buying investment property, there is a simple rule of thumb that is recommended: “Multiply your useable equity by four to arrive at the maximum purchase price for your investment property.” Remember that besides the purchase price, you need to budget for purchase costs such as realtor’s fees and escrow fees among other expenses.
Even if you have plenty of equity, conventional lending companies will consider other factors such as income, credit score, property condition and additional debts. However, a Hard Money Lender such as ours, Sun Pacific Mortgage, will make it considerably easier to qualify if you find it difficult to prove your income, have less than perfect credit scores, or are buying distressed property.
Ultimately, using equity to obtain business capital can be a smart move. If you are seriously thinking about pursuing extra cash for home fix-ups, to buy an investment property or need business capital, give us a call at 707-523-2099 to discuss our various programs available to you. We have helped, and even through the recent pandemic, are continuing to help hundreds of Californians just like you become wealthier through real estate.