Buying another house is often a good investment, whether you're getting it for a rental or buying a second home that you may eventually retire to. Real estate tends to increase in value over the long term. Investment properties, however, generally require higher down payments than primary homes, usually about 20 percent of the purchase price. You can borrow part or all of the down payment money.
You can tap the equity in your existing house to help with the down payment on an investment property. You can get a home equity loan up to about 80 percent of the equity in your existing house. If your down payment is $20,000 and your home equity loan maximum is $10,000, you can borrow half the down payment. If you qualify for a $20,000 equity loan, you can borrow the whole down payment. You won't have any closing costs and the interest on that loan will be tax-deductible. The danger is that this loan is secured by your primary residence, not the investment property -- if you fail to repay the loan, you might lose your home.
Your 401(k) retirement plan is another source for a down payment loan. You can borrow up to half the amount you have accumulated, up to $50,000. You pay interest, but usually the prime rate plus 1 or 2 percent. When you repay the loan with interest, that interest typically goes back into your retirement account.
Life insurance is another option for collateral for a down payment loan. You usually can borrow up to the cash value of the policy -- basically, the amount you have paid into it. There may be a short time limit on repaying, and interest rates may be higher than on home equity loans. Any unpaid loan amount will be deducted from your death benefit if you die.
You can ask your lender about taking a second mortgage on the investment property, such that you borrow part or all of the down payment. Some lenders will make 80/20 or 80/10/10 arrangements. Under an 80/20, you borrow 80 percent on a conventional mortgage, and 20 percent for the down payment secured by a second mortgage, usually with a much shorter term and higher interest. An 80/10/10 has an 80 percent basic mortgage, 10 percent second mortgage and 10 percent regular down payment.
- Wells Fargo: Buy an Investment Property
- Bankrate.com: 5 Tips for Financing Investment Property
- MSN Real Estate: Should You Borrow From Your Retirement Savings for a Down Payment?
- Real Estate.com: How Much Down Payment Do I Need for a House?
- Wells Fargo: Using Home Equity Toward a Down Payment
- HSH: Home Equity Loan: Fund the Down Payment on Investment Property
- BB&T: Home Equity Loan
- Hemera Technologies/AbleStock.com/Getty Images
- Differences Between a Home Equity Loan & Second Mortgage
- What Is an 80/20 Mortgage Loan?
- How Do I Increase a Mortgage to Fix Up a House?
- Rules About PMI & Decreasing Home Value
- How to Apply for a Second Mortgage
- 5-Year FHA Mortgages vs. 30-Year FHA Mortgages
- Differences Between a Mortgage & a Home Equity Loan
- How Is Equity Determined When Refinancing a Second Mortgage?