How to Get a Home Equity Loan on a House You are Renting Out

Some banks and mortgage lenders do not approve home equity loans on non-owner-occupied residencies, which include rental properties. Yet it is possible to obtain an equity loan on an investment property. In many instances, the application process is quick and very similar to owner-occupied home equity loans.

Difficulty: Moderate

Instructions

Things You'll Need:

• Credit report
• Down payment
• Mortgage lender

1. Find a mortgage lender. Prior to applying for a home equity loan on a rental property, contact potential lenders and ask whether the bank approves these types of requests.

2. Check your credit report. Because your rental property secures the home equity loan, you can get approved with less-than-perfect credit. Still, it helps to have a good or average credit score. Consequently, you’ll qualify for a low, affordable rate.

3. Know your options. There are various types of home equity loans. Furthermore, there are ways to keep the payments low. If you plan to improve and ultimately sell the rental property, consider an adjustable rate or an interest only home equity loan, which offer lower payments. On the other hand, if you plan to hold onto the property, get a fixed rate loan.

4. Wait until you have enough equity. Homeowners can borrow up to 100 percent on owner occupied home equity loans. However, if you’re getting a home equity loan on a rental property, many lenders require borrowers to maintain at least 20 percent equity.

5. Compare different home equity loans. Obtain quotes from local lenders and online lenders. Ideally, you should get at least three or four different quotes. Also, look for loans that don’t have closing costs.