Existing Home Equity: Perfect Financing for your First Rental Property

Rental income can be a great source of passive income, enabling you to generate a positive cash flow without having to do any additional work. However, buying your first rental property can be a daunting process, as there are many things to consider and know before you get started. There are several ways to acquire funds to purchase your first rental property. One of the ways is through equity of your existing home.

The existing equity of a home is 80% of the amount of money that the homeowner has invested in the home, minus the amount of money that is still owed on the home loan. For example, if a home is worth $300,000 and the homeowner still owes $120,000 on their mortgage, then the existing equity of the home would be $120,000 (80% of $300,000 minus $120,000).

You can take out your equity in one of the two ways through refinancing, either a home equity loan or a home equity line of credit (HELOC)

A home equity loan can be useful for those looking to purchase their first rental property, allowing them to borrow up to 80% of the value of their home. A home equity loan is likely to have a fixed interest rate, making it easier to track payments and stay on top of the loan.

A home equity line of credit (HELOC) is a bit different to a home equity loan. Rather than borrow a fixed amount of money, a HELOC will give you access to a line of credit up to a certain limit. This makes it useful for those who need more flexibility, as you can withdraw varying amounts of money and make payments as you go.

Buying your first rental property can be as easy as, refinancing your home to take out the existing equity, and using the funds to cover the downpayment and closing costs.

Here at Farley Mortgage, we help countless clients acquire financing for their rental and investment properties.

Contact us Today to learn how we can meet your mortgage needs!