If you own a rental property that has grown in value, its equity can fund another purchase, renovations or other goals. But lenders treat rental properties differently from the home you live in, with more conservative limits and closer attention to the numbers.
How lenders view rentals
- Lower limits. Lenders usually allow you to borrow a smaller share of a rental’s value than an owner-occupied home.
- Rental income counts, partly. Lenders typically use a portion of the rent, either adding it to your income or offsetting the property’s costs, depending on their policy.
- Higher rates may apply on some rental refinances.
- Your whole portfolio matters. Lenders look at every property you own and every mortgage you carry.
What lenders will ask for
- Current leases and proof of rent received
- Property tax notice and insurance
- Mortgage statements for all properties
- Your personal income documents
- An appraisal of the rental. See how lenders value your home.
Using the equity
Common uses include the down payment on another rental, renovations that raise rents, or paying down higher-cost debt. See using equity to buy a second property and ways to access your equity.
Check that the property still pays for itself
After borrowing more, the rental’s costs go up. Compare:
- Rent received
- New mortgage payment, taxes, insurance and condo fees
- Repairs, maintenance and vacancy allowance
If the property no longer covers its own costs, you’ll need to cover the gap from your income.
Taxes
How interest is deducted depends on how the borrowed money is used, and the rules can be detailed. Speak with an accountant before you borrow.
When an equity lender helps
If a bank won’t refinance because of your income documents or the number of properties you own, an equity lender may be able to. Expect higher costs. See what equity mortgages cost.
This article is general information, not financial, legal or tax advice. Lender requirements, rates and fees change and depend on your situation.