How to Get a Larger Loan Than the House Cost

Tap into the equity in a home.

Purchasing a home is a major decision. People who can afford a big down payment and find a home at a low purchase price have instant equity in the property. In these circumstances, you can apply for a home equity loan, or refinance the loan shortly after closing to tap into the equity. If you plan on starting home repairs or have other expenses, securing these loans is a good option.

Instructions

1. Calculate the amount of money a financial institution will lend. Most lenders will offer a loan that doesn't exceed 28 percent of monthly income. For example, if your monthly income is $4,000, the lender wants monthly payments at $1,020 or lower.

2. Secure the lowest interest rate. Low interest rates decrease your monthly payment. This will allow you to qualify for a larger loan. Compare interest rates online, through comparison tools such as Bank Rate and Yahoo Real Estate. Contact the companies who have the lowest interest rates for more details.

3. Find a home that is priced below the market rate. If you want to get a loan for more than a home's value, you must find a home that is priced below the market value. For example, if the appraisal states the home is worth $275,000 and you pay $225,000, this gives you $50,000 equity right away.

4. Complete a loan application. After you have found the right home, complete a loan application with the chosen lender. This will require providing documentation, such as tax returns, current pay stubs and other financial documents. Based on this information, the lender will approve or decline the loan.

5. Request a second mortgage on the property. After the loan has closed and you have completed the first mortgage transaction, talk with the lender about securing a second mortgage on the property. For example, if you have $50,000 of equity in the home, a lender may extend a home equity loan on the property for this amount. So, you will have two loans, a first mortgage and second mortgage.

Tips & Warnings

• Another option for tapping into a home's equity is refinancing the home shortly after the initial purchase. This is called a "cash-out refinance" because the purpose is to access home equity. Avoid closing costs by using your current lender for the refinance. Your existing lender may offer a no-cost refinance.

• People with poor credit may have difficulty cashing out equity in the home. Learn where you stand by pulling a credit report and score. Annual Credit Report, which is run by the three large credit bureaus (Experian, TransUnion and Equifax) allows you to do this online.

References

• CNN Money: Affordable Home Calculator
• Yahoo Real Estate: Find Mortgage Rates
• Bankrate.com: Find Mortgage Interest Rates

Resources

• Annual Credit Report: Find Credit Score