Loans and down payments
What lenders ask for, and how the loan changes the deal.
3 articles
A HELOC down payment turns this rental’s $420 a month into $66
Yes. Fannie Mae accepts money borrowed against your home as a source for a down payment, but the lender has to count the payment as a debt. In this example, a $50,000 HELOC at 8.5% costs $354 a month in interest, so a rental that keeps $420 a month keeps $66, and loses $14 a month once a 20-year repayment starts.
This rental works at 7%, cuts it close at 7.5% and breaks even near 10%
Every quarter point adds about $34 a month to the payment on a $200,000, 30-year loan. In this example, a $250,000 rental keeps $420 a month at 7%, $352 at 7.5% and $213 at 8.5%, and its cash flow runs out at 9.97%. A loan on a rental also carries a fee that a loan on a home you live in doesn’t, so your rate can sit above the average in the news.
A $250,000 rental needs $72,688 in cash. Only $50,000 is the down payment.
Plan for four piles of cash: the down payment, closing costs, any work before the first tenant, and reserves, the months of payments a lender wants you to still have after closing. In this example, a $250,000 rental with 20% down needs $72,688, and only $50,000 of it is the down payment.