Big equity begets big loan


September 06, 1998

Dear Mr. Azrael:

I'd like to know if there's any way that I can purchase a house using my own home as equity without having to make any significant down payment. I presently owe about $13,000 on a $160,000 home. Thank you.

Curt Global


Dear Mr. Global:

Your home has substantial equity. Equity is the difference between the value of your home and the amount owed on it. Assuming you have good credit, you easily should be able to borrow 60 percent to 80 percent of the equity in your home. This borrowing power could be used to provide a down payment for purchasing a second home or investment property.

Of course, any additional borrowings must be repaid. You will have to feel comfortable that you can afford the higher mortgage payment each month.

While many folks have refinanced their homes to obtain cash to )) buy other property, this is not a move to make without careful consideration of the risks and benefits.

If you decide to use the equity in your home, there are several ways to proceed.

One alternative is to obtain a new first mortgage on your home in an amount sufficient to pay off the existing loan of $13,000, and to provide the down payment you need to purchase the second mortgage.

Another choice is to obtain a second mortgage on your home to give you the down payment for the new property you are buying.

A third alternative is to borrow 100 percent of the cost of the new property, and secure that loan by a first mortgage in the new property and a second mortgage on your existing home.

In today's market of relatively low interest rates, the first alternative probably will be the least costly. But, depending on the particular circumstances, one of the other alternatives may be the better choice.

You should consult your accountant or financial adviser to analyze the options available.


The Sun invites you to send real estate questions to Mailbag. Questions will be answered by Jonathan A. Azrael of Azrael, Gann and Franz of Towson. Questions -- including name, address and daytime telephone number -- can be sent in the following ways:

Mailing address: Real Estate Mailbag, Fifth Floor, 501 N. Calvert St., Baltimore, Md. 21278-0001. Fax: 410-783-2517. E-mail:

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Pub Date: 9/06/98

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