Can I use the equity in my home to buy my first rental property?
Yes, the good news is that when buying a rental property, you can use other assets, even the leveraging of other assets to purchase the new estate. Depending on the loan program and type of property, you may need a down payment and also cash reserves. Learn more about Home loans in Torrance California here.
When looking for a down payment for a new property, these are your options:
- You could refinance your home and take cash out depending on the rate you currently have on your mortgage. (This may be an improvement in the interest rate you are paying and maybe the safest way to get the money).
- You may also consider getting a home equity line of credit against your home.
However, if your current mortgage has an excellent low-interest rate or you have been paying for years, you may not want to undo that existing loan. Get more information at Mortgage loans California.
Advantages of a home equity line
- The good news about a home equity line is that you only pay on what you owe, and it is interest only.
- So as the new property cash flow gets stronger and stronger, you can pay that debt down, reducing the monthly payment.
- If you need the money again, you can also draw that money back out during the “draw period.” Contact Athena Paquette Mortgage Consulting for more information.
Please check with your CPA on whether you can deduct the interest on this loan or there are limitations.
Disadvantages of a home equity line
- The drawback to a home equity line is that it is usually an adjustable-rate mortgage based on “prime,” which eventually will go up as the economy does better and inflation kicks in.
Another way to borrow for a new property is against your 401k plan or other investment vehicles. See my article on borrowing from your 401k, or Contact me for more information.