Homeowners today are enjoying the increased equity in their
home. After several years of price deflation in most parts of the country now
not only has that lost equity returned it’s still gaining. This means
homeowners have easy access to that equity to do with whatever they please. And
one place to use this equity is to take advantage of rising rental rates here
in the United States. Homeowners can tap into this equity in two ways, an equity
loan or a cash out refinance and use the proceeds as a low cost down payment to
buy a rental property.
An equity loan comes in the form of a separate, second lien.
This lien will carry a slightly higher interest rate compared to the first lien
but when compared to installment or revolving credit the rate is extremely
competitive. How much is available? Most equity loans allow homeowners to
access up to 90 percent of the current value of the property. When applying for
an equity loan, the lender will document the file in very much the same manner
as the first including ordering a new appraisal. The new appraisal will provide
the current value lenders use when determining how much money can be borrowed.
The other way to tap into this equity is with a cash out
refinance. When borrowers decide it’s time to refinance either by switching
from an adjustable rate to a fixed or to change loan terms, in the process they
can also pull out equity in the form of cash at the closing table. When
replacing the previous mortgage with a new one, after all closing costs are
considered, cash proceeds can be given to the borrower.
If you’ve got equity in your home and you’ve got some ideas
on what to do with it, contact your loan officer and discuss your available
options and find out how easy it is to turn equity into a down payment and
closing costs for an investment property.