How to work out if you have usable equity in your home
Home equity is the difference between the market value of your property and the amount still owing on your mortgage. This means that if you have an existing property you could have equity to use towards the deposit for an investment property or a new home.
Under the current property laws, how much equity you need to have in your existing home to leverage some of it for the deposit for a second home varies.
"It depends on the kind of property you have. Most people fall into the ‘if it’s an owner occupier, then you can have 80% lending against it in most cases. If you are turning your existing property into a rental to buy another owner occupier, then you can only leverage up to 60% on your current home, then 80% on the new" April Hastilow Head of Lending at Become.nz explained.
Equity is the difference between what you owe on your mortgage and the current market value of your home.
"It is the amount you owe on your property divided by the amount your property is worth. For example, $450k loan on an $830k value= $450/$830 = 54% LVR" said Hastilow.
Information on how to calculate your equity is readily available, but what is not explained is how do you calculate your usable equity.
Useable equity is the amount of equity you have in your home that you can use to access further credit.
"To work out your usable equity determine the value of your property x.8% = then minus your mortgage from it. For example= $830k x.8 = $664k lending, minus $450k = $214k available to leverage" explained Hastilow.
If you completed this equation and think you might have usable equity and want to look at buying a second property then Become.nz can help.
Bear in mind that when you apply for lending the banks look over your statements for three months prior to see how you have been managing money.
"If you’re not ready to go just yet be aware that banks base your budget on your actual spending - so they will look at every bank account you have to see what you are spending so pulling back on discretionary spending, Afterpay and Layby, and being able to save will help show a bank you can take the step up into having more lending" advises Hastilow.