Equity in Current Home to Buy Another

Reader Question: I want to purchase another home but I don't have equity in my current home. I am confused about the process. How does this work? Do I have to have equity in my home to purchase another?

I'm not sure whether you would like to buy a home in addition to the one you currently own, or you want to sell the home you live in but purchase a home before the sale takes place. In either scenario, you would need to have sufficient income to pay both mortgages and cash for the down payment on the new/additional home.

The only reason you would ever need equity in your current home to purchase an additional home would be for the down payment (in the event you do not have the cash). In that case, the lender would allow you to borrow against the available equity for your down payment and closing costs. This type of arrangement is referred to as a bridge loan, but they are not easy to secure in the current economy due to declining real estate values and lender restrictions.

Related information on our website:

Home equity loans -- This type of financing is popular among homeowners as a quick source of cash. But there are smart and foolish ways to use an equity loan or credit line, and this article explains the difference.

Buying a new home before selling old one -- Is it possible to buy a new home before selling the old home, and if so how do I go about it? This article provides some answers.