Excess inventory on the condo market has created advantages for opportunistic buyers. A home equity loan on your primary residence may be the ticket to help fund your new vacation or investment condo.


Albert Einstein once said, "In the middle of every difficulty lies opportunity." While Einstein may have been better known for his genius in physics, this observation is just as true in today's real estate market.

Opportunity knocks

Let's face it. Real estate values are heading south, and there's a glut of condos on the market. It's not pleasant to watch the value of your condo drop like a rock. On the other hand, consider the condo that you were dreaming about when real estate prices were soaring. If you have good credit and equity in your primary residence, now may be the time to scoop it up. In fact, an opportunity to purchase a second or vacation residence may never look this good again.

That's because current real estate conditions strongly favor condo buyers. Many developers are just finishing up projects conceived when the market was flying high. And many owners are holding investment properties that they bought with the expectation that values would continue to rise. These developers and owners alike are feeling the weight of excess inventory, unstable pricing, and a lack of qualified buyers.

As a result, many condo sellers are ready to deal. Developers might offer help with closing costs and free condo upgrades. And many individual owners are flexible on their asking prices.

Funding your condo investment

The biggest obstacle to purchasing any type of real estate right now is the down payment requirement. Lenders have tightened up their underwriting standards to the point that 100 percent mortgage loans are tough to come by. Realistically, you have to plan for a down payment of 25 to 30 percent of the purchase price. On a $300,000 condo, that's $75,000 to $90,000.

You may be able to fund all or part of your down payment with a home equity loan. Home equity lenders will want to see a strong equity position and excellent credit history. It's a good idea to find out where you stand on both measures before you start loan shopping: Get a free, informal appraisal on your home, and pull your credit report. Calculate your equity by subtracting your first mortgage balance from your home's value. Then review your credit history for errors; if you find any, have them corrected right away.

You should be in good shape if your equity value is sufficient and your credit history is clean. While lenders have been more particular in recent months, they're also more appreciative of creditworthy borrowers.

Here's what it comes down to: At the heart of this difficult real estate environment, there's an opportunity for qualified borrowers to exploit the circumstances and come out with a valuable condo property at a competitive price.

Published on March 10, 2008