How to Borrow Against Equity After Buying a Home

Some home buyers want to borrow against equity after closing for improvements.

Do not make the mistake of believing it is a slam dunk to borrow against home equity after buying a home or that obtaining a home equity loan will be the same as getting a mortgage to buy. Many home owners today are planning to make improvements right after closing. When sellers ask me if they should hang on to their home and improve it, or whether it makes more sense to buy a new home and fix up that home, well, everybody’s situation is unique.

For starters, many sellers who ask that question don’t really like their own home. There might be something about the location, configuration or style they don’t like, too. That can be resolved by buying a new home, even if that new home doesn’t meet all criteria and after closing, deciding to borrow against equity to fix it up. The question is why install a new HVAC, roof and siding at your old house when those costs will NOT be returned in whole upon resale? You don’t accumulate equity just because you have fixed a leaky pipe.

You may as well fix up your new home. At least you will be there a while to enjoy it. And while you’re making maintenance repairs, why not remodel the kitchen to your tastes or add a swimming pool? You can probably get a home equity line of credit if you borrow against your equity through a local credit union. The difficulty with this arrangement, though, is trying to obtain that line of credit immediately after closing.

A little known thing happens during escrow that most people have never considered. When your escrow closes, the existing loans owed against the property by the previous seller are not automatically lifted from the property. Escrow closes on a promise from the existing lenders that they will each issue a reconveyance after closing and record in the public records. And therein lies the difficulty.

A new homeowner cannot borrow against equity until those liens have been reconveyed. If the old lender(s) drag feet, it can take a month or more to remove those liens. The solution is to obtain a letter from the lenders stating the loan will be removed, but even that can absorb precious time to obtain. So it’s not instantaneous that many sellers can immediately get a home equity line of credit. Take that little quirk into consideration before beginning your home improvement projects after closing.

Tip: Before remodeling your home, check to make sure the previous loans recorded against your new home have been released. If you need help buying or selling a home in Sacramento, call top producer Elizabeth Weintraub at 916.233.6759.