Before you apply for a home equity loan to buy another house, it’s worth considering the alternatives. They, too, have advantages and disadvantages.

The best source of cash to buy another house would be money that you have already saved and for which you have no other immediate need.

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Retirement savings

Your retirement savings are a possibility. If you have a 401(k) plan at work, for example, your employer may allow you to borrow a portion of it through a 401(k) loan. Like home equity loans, retirement plan loans can be risky. You’ll typically need to pay back the loan within five years-even sooner if you lose your job. If you can’t pay it back, then you’ll owe income taxes and possible penalties.

If you borrow from your 401(k), you will have that much less money saved for your retirement years, which could mean financial problems down the road.

Personal loan

You could consider a personal loan. You’ll pay a higher interest rate than with a home equity loan or HELOC, but if the personal loan is unsecured, then your home won’t be at risk if you fall behind on payments.

Cash-out refinance

A cash-out refinance pays off your current mortgage with a larger one based on the accumulated equity in your home. You can then use the extra cash for other purposes. Of course, you’ll now have more debt and higher monthly mortgage payments. These loans also have closing costs that can run into the thousands of dollars.

Home equity line of credit (HELOC)

Using a HELOC to buy an investment property, rental property, or second home can give you more flexibility than you get with a home equity loan, in that you don’t have to take the money all at once. (suite…)