To obtain an equity loan for a rental property, the owner must first locate lenders who offer this type of loan and then provide information such as proof of equity, current mortgage information and a credit report in order to secure a good interest rate, according to Zacks. It is also helpful to provide a current appraisal with home inspection in order to demonstrate the value of the property, which can make it easier to obtain the loan.
The investor should compare interest rates and requirements from several lenders, which can be more difficult than with a traditional mortgage due to the fact that some banks do not offer equity loans on investment properties or rentals, explains Zacks. Lenders want to know that borrowers can afford the loan payments and have a reliable credit history, and that the home itself is likely to increase, or at least maintain, its value throughout the term of the loan. The borrower should also have at least 20 percent equity in the house. If there is an existing mortgage, many lenders require that the amount of the equity loan combined with the remaining balance of the current mortgage does not exceed 80 percent of the home's fair market value.