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Buying and selling real estate at the same time is a complex process, but with the right planning and tools it can be quite straight forward. 

When people want to sell one property and buy a new one, they often need the proceeds from the sale for the down payment on the purchase. There is a way to unlock this existing equity before selling the property with a HELOC.

 A HELOC (Home Equity Line of Credit) is an excellent tool to access the equity in your home. It works just the same as a personal line of credit, but with a lower rate and a higher limits since it is registered on title. Generally speaking, HELOC rates are in the Prime +0.50% range, which is 7.70% today. Minimum payments are interest-only per month.

Here's how it works, with an example of a current property valued at $900,000 with a $350,000 mortgage balance: 

HELOC Setup: With a condo valued at $900,000 and a mortgage balance of $350,000, you decide to establish a HELOC on your property. Calculating 80% of the market value ($900,000 * 0.80 = $720,000) and subtracting the outstanding mortgage balance, you're eligible for a HELOC with a limit of $370,000.

New Property Purchase: With the HELOC in place, you're well-equipped to make an offer on a new townhouse in the $1.2 million range. The availability of the HELOC funds allows you to proceed confidently with the purchase.

Listing Current Property: Once you secure an accepted offer on the new property, you can proceed to list your current condo for sale. The HELOC provides you with immediate access to funds, eliminating the need to wait for the sale of your condo to finance the new purchase. Once the current property sells, the HELOC balance is automatically paid off and closed.

Potential Rental Strategy: In certain scenarios, you may choose to convert your current condo into a rental property. Rental income generated from the condo can be used to cover mortgage payments on both the existing mortgage and the HELOC. This strategy allows you to leverage the rental income to pay down debt and potentially build equity in both properties.

By leveraging a HELOC in this manner, you can effectively manage the transition from one property to another, ensuring a smooth and financially sound process. However, it's essential to carefully consider the terms and risks associated with a HELOC and to make informed decisions based on your individual financial situation and goals. Message me today to see if a HELOC is the right tool for your needs.


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