Saving cash for the next down payment versus borrowing against the house you just moved out of
Say a buyer's first house is bought and occupied, so the next decision on rung two is still a year out but worth understanding now. To fund a down payment on the next property, there are two common paths. Save it from income. Slow, boring, no new debt. For a buyer setting aside around 1,100 a month, that's roughly 14 months to reach enough for a low down payment plus closing costs plus a small reserve. That keeps the converted first house clean, one loan on it, and the rent above the payment by a comfortable margin. Or borrow against the first house once it has some equity, typically a home equity line drawn only once under contract on the next property. Faster, and it uses value that's already sitting there. The cost is a second payment on the rental, which eats into the margin that was otherwise built in, the line's rate can move, and the payment shows up in the borrower's ratio when applying for the next mortgage. Whether a lender counts the full line or only the drawn balance varies by lender, which is worth getting in writing before assuming either way. Either path can be right depending on how patient the buyer is. What's less obvious is which one people tend to regret. Worth asking what rung two actually got funded with in practice.
Funding the down payment on rung two:
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