A common misconception is that you can use all your equity to buy a property. In most instances, you can only borrow up to 80% of the value of your home.
With this in mind, here’s how you can calculate your usable equity:
- Calculate 80% of the value of your home (for example: $500,000 x 80% = $400,000)
- Subtract your current outstanding debt ($400,000 - $320,000 = $80,000)
This means you’d have $80,000 of usable equity to put towards a deposit for a home loan, as well as other buying costs like stamp duty and settlement fees.
If the usable equity isn’t enough to cover the full deposit and any stamp duty and settlement costs, you’ll also have to make a cash contribution.