Financing – Alternative Options: Using Home As Collateral


In this post we will look at the option of using your existing home as collateral. You will want to do this only if you have a lot of equity because you have owned your home for a long time and did not refinance every 5 years. If you have cash to buy your land outright, there is no reason to finance your new property. Why pay your hard earned money to the financial institutions, in the form of outrageous interest and fees (more on this later), when you can use it for improvements on your new oasis.

If you do not have enough equity to finance your entire property, you may need to get an additional loan for the purchase. But you should get a Home Equity Credit Line (HECL) on your current home, from a local small bank or credit union (best rates – joke – more on this later), while you are still owner occupying it. After the HECL loan money is available, take as much money as you can and use it for the down payment on your new purchase. The larger your down payment (the lower your loan amount to market value), the better your rate on your new loan.

If you are not buying a property with an existing home on it, just land, you will not be getting a home loan, you will be getting a land loan. To get a loan for land, you will need to go commercial and get an agricultural loan. Plan on the loan only lending up to 50% of the value of the property, in this case. The other 50% will need to come from the HECL, or other money you have in reserves, as a down payment.

Placing most of your equity on your existing home in a HECL is the best way to have your future tenants paying a good percentage of your new property. They are going to pay rent, anyway, so let them pay your rental property and HECL off for you. (You will actually be collecting the rent and utilities from your tenants and paying the mortgages and utility bills yourself.)
Keep in mind that this option is only good for those buyers that have owned their current home for a long time and who have built up a lot of equity.

In the next post in this series, we will look at the option of renting out your existing home.

About Julie

A loan officer of 15 years, a gardener of 40 years, raised on a 1200 acre ranch raising 300 head of sheep. Creative and intuitive, she envisions beauty and makes it a reality whether with sewing, cooking, knitting on her knitting machine, in her home or in the garden. She is blessed to live with her best friend as her husband and she has always felt as one with God, nature and with animals and would turn to the mountains for strength and now lives her life, totally content in the Rockies at 8700 elevation.


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