Several lenders offer home equity loans on non-owner occupied properties. The maximum loan-to-value (LTV) ratio for the first mortgage on an investment property is lower than for other types of mortgages so using a home equity loan can enable you to access additional equity in your property.
For example, the maximum LTV ratio for the first mortgage on a cash out refinance of a single unit non-owner occupied property is typically 75%. If you can qualify for a home equity loan with a combined loan-to-value (CLTV) ratio of 85%, including both the first mortgage and the loan, that means you can access 10% more equity and take more cash out of the property.
Depending on the value of the rental property and the loan terms, a home equity loan can enable you to unlock a significant amount of money. For example, for a property valued at $500,000, the additional 10% of equity is worth $50,000.
The table below shows home equity loan rates and fees for leading lenders in your area. We recommend that you contact multiple lenders as program availability and qualification requirements vary. Shopping multiple lenders enables you to find the best investment property home equity loan terms.
It is important to highlight that not all lenders offer home equity loans on rental properties and the lenders that do offer them may apply different eligibility guidelines. For example, some lenders may use a CLTV ratio of 85% while other lenders use a lower ratio of 80%.
Additionally, the interest rate for a rental property home equity loan is usually higher than the rate for a home equity loan on your primary residence. Lenders may also charge an interest rate premium for loans with a higher CTLV ratio.
Other factors such as the number of units in the property, the cash flow generation characteristics of the property and your financial profile also impact your ability to qualify as well as your loan terms. Higher quality properties and applicants with good incomes, higher credit scores and significant financial reserves are more likely to qualify and receive more favorable loan terms, including a lower interest rate and higher loan amount.
Review How a Home Equity Loan Works
Because the terms for a non-owner occupied home equity loan vary, it is important to compare proposals from several lenders including different types of lenders. In addition to contacting your first mortgage lender and other banks you have a relationship with, we also advise you to contact several credit unions as they tend to offer more flexible qualification requirements and more aggressive pricing.
The more effort you put into comparing loan terms and more lenders you shop, the better positioned you are to find the lender and home equity loan that meet you financial objectives.« Return to Q&A Home About the author