How it works
The usual approach is to borrow against the home you live in, then use that cash toward the down payment and closing costs on a rental. You then take out a separate mortgage on the rental itself.
The result is two new debts: the equity loan on your home and the mortgage on the rental. Both payments count when a lender reviews your budget.
What CapCenter can lend on
To be clear about where we fit: CapCenter's fixed-rate home equity loans are available only on single-family homes used as a primary residence or a second home. We can't place a home equity loan on an investment property, a condo, a two- to four-unit building or a manufactured home.
That still leaves options. If your own home qualifies, a home equity loan of $50,000 to $250,000, with 15, 20 or 30-year terms, could be one source of funds. Ask your loan consultant whether that use fits your plans. CapCenter also finances investment properties with first mortgages, so we can help with the rental purchase.
Ways to use equity
- A home equity loan on your single-family primary home or second home, keeping your current first mortgage
- A cash-out refinance on your primary home, replacing your first mortgage with a larger one
- A cash-out refinance on a rental you already own, where available
- Savings or a mix of sources, to borrow less
Home equity loan or cash-out refinance?
A home equity loan leaves your first mortgage alone, which can make sense if your current rate is low. A cash-out refinance replaces it with one new loan and one payment. Compare the total interest and monthly cost of each with your loan consultant.
How lenders look at rental income
Many lenders count part of the expected or current rent toward qualifying, often with a lease, an appraiser's rent estimate or tax returns showing rental history. They usually count less than the full rent to allow for vacancies and costs.
Down payments on investment properties tend to be larger than on a home you'll live in, often 15% to 25% depending on the loan and the number of units.
Run the numbers first
Before you borrow, build a simple budget for the rental. Include the mortgage, the payment on your equity loan, taxes, landlord insurance, repairs, property management and a few months of vacancy.
If the rent only covers the costs on a perfect month, there's little room for surprises. Your home is on the line, so leave a cushion. A tax professional can explain how rental income and interest may be treated for you.
