Looking to cash out Equity from rental property.

Houston, Texas
Private Lending & Conventional Mortgage Advice
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Looking to cash out Equity from rental property.

James Burciaga
Rental Property Investor · Houston, TX · Member since 2017 · 16 posts · 11 votes

Hello All, I'm in Texas and I'm looking to pull some equity out of a rental property.  What type of loan should I be looking at?

Home value $285k, rents for $3,000/mo.  No mortgage on the property.  Looking for $175k- 200k cash out on a long-term note 20-30 yr.

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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
2y
Quote from @James Burciaga:

Hello All, I'm in Texas and I'm looking to pull some equity out of a rental property.  What type of loan should I be looking at?

Home value $285k, rents for $3,000/mo.  No mortgage on the property.  Looking for $175k- 200k cash out on a long-term note 20-30 yr.


 Two choices:

1. A full documentation 30 year fixed conventional loan. This loan would require you prove your income with tax returns, pay stubs, W-2's etc as well as the rental income on the subject property. This will be the best rate, lowest closing costs and no pre-payment penalty option. Many big lenders will tell you cannot do this in Texas, but they are incorrect. We do it everyday. 

2. You can do a debt service coverage loan (DSCR) which will ONLY look at the rental income the property is bringing in. So, no need for paystubs, tax returns, w-2's etc. This option will have higher rates, generally higher closing costs and often with pre-payment penalties. DSCR loans are a good options IF you cannot qualify for option 1.

Hurst Real Estate, INC4.989 Reviews
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  • Brandon BeardtPro Member
    Lender · La Crescenta, CA · Member since 2021 · 261 posts · 157 votes
    2y
    Quote from @James Burciaga:

    Hello All, I'm in Texas and I'm looking to pull some equity out of a rental property.  What type of loan should I be looking at?

    Home value $285k, rents for $3,000/mo.  No mortgage on the property.  Looking for $175k- 200k cash out on a long-term note 20-30 yr.


    Hi James, the type of loan you should be looking at depends on what your goal is and how you want the scenario structured. The loan options available to you ultimately depend on what you can qualify for. If you're looking for best rate/terms and can qualify with full doc/income qualification, then conventional financing may be what you're after. Alternatively, if you're looking to qualify with alternative/no documentation, then a non QM/business purpose loan may be your best option. Closing in an LLC vs closing in your individual name is just one example of a loan factor to consider. You won't be able to close in an entity with conventional financing. Seasoning periods for cash out is yet another factor to consider. Different types of loans have different Title seasoning requirements when it comes to qualifying for a cash out refinance. You may not meet the Title seasoning requirement for conventional financing but may already be at that threshold for non QM/business purposes loans. There are many intricacies when figuring out which type of loan you should go for. I'd recommend speaking with different lenders/brokers to see what they can offer based on your specific scenario and goals for the refinance.

    [email protected]818-726-2418
    1Reply
  • Nicholas Covington
    Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
    2y

    If you are looking for options just based on the home itself and not your income then you will be looking for a DSCR loan. You can get up to 75% cash out and seems the rents are pretty strong to qualify for that.

    0Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @James Burciaga:

    Hello All, I'm in Texas and I'm looking to pull some equity out of a rental property.  What type of loan should I be looking at?

    Home value $285k, rents for $3,000/mo.  No mortgage on the property.  Looking for $175k- 200k cash out on a long-term note 20-30 yr.


     Two choices:

    1. A full documentation 30 year fixed conventional loan. This loan would require you prove your income with tax returns, pay stubs, W-2's etc as well as the rental income on the subject property. This will be the best rate, lowest closing costs and no pre-payment penalty option. Many big lenders will tell you cannot do this in Texas, but they are incorrect. We do it everyday. 

    2. You can do a debt service coverage loan (DSCR) which will ONLY look at the rental income the property is bringing in. So, no need for paystubs, tax returns, w-2's etc. This option will have higher rates, generally higher closing costs and often with pre-payment penalties. DSCR loans are a good options IF you cannot qualify for option 1.

    Hurst Real Estate, INC4.989 Reviews
    WebsiteView Page
    2Reply
  • Chad Davis
    Lender · Richmond VA · Member since 2012 · 303 posts · 30 votes
    2y

    @James Burciaga you can go the traditional bank route, paystub, taxes, W2 or you could go the DSCR with less documentation but slightly higher rate. Sent PM

    0Reply
  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    2y

    There are really 3 options, assuming you are self employed. Only 2 options if you are a W2 wager earner. 

    1. Full doc Conventional loan will generally get you the best rates and terms.

    2. Bank Statement loan if you are self employed. 12 or 24 months personal or business bank statements. This gives you closer to conventional rates, but this loan has a pre-payment penalty within the first 1-5 years, you choose the length or penalty. 

    3. DSCR loan. No employment or income is put on the application, it just considers the rents/lease amount versus the PITI mortgage payment on the loan. The rents/lease needs to equal to or more than the PITI mortgage payment. This has the highest rate of the 3 loan types, and it will also have a pre-payment penalty for 1-5 years.

    I hope this helps?

    0Reply
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    2y

    With your property worth $285k and a steady $3,000 monthly rent, let's look at some options to get cash out. The classic Cash-Out Refinance gives you a new loan with attractive rates, but be aware of potential loss of existing lower rates. If you don't have a mortgage, a Home Equity Loan offers a lump sum with fixed monthly payments. For flexible access, a Home Equity Line of Credit (HELOC) works, but watch for interest rate changes. Private lending is an option for specific needs, but it might have higher interest rates. Considering your goal of a $175k-$200k cash-out and a 20-30 year term, explore these options while being mindful of lenders' limits based on your property's value. Always shop around, check your credit score, and remember to factor in closing costs when making your decision.

    [email protected]832-889-5607
    0Reply
  • AJ ExnerPro Member
    Lender · Springfield, MO · Member since 2023 · 652 posts · 314 votes
    2y
    Quote from @James Burciaga:

    Hello All, I'm in Texas and I'm looking to pull some equity out of a rental property.  What type of loan should I be looking at?

    Home value $285k, rents for $3,000/mo.  No mortgage on the property.  Looking for $175k- 200k cash out on a long-term note 20-30 yr.


    Hey James,

    Would highly recommend a DSCR loan to keep off of your personal credit/DTI and start building from there. With the reduced leverage and cash flow potential hopefully you would sit around 7.25%-7.5% right now on a 30 year fixed.

    I would also take a close look at the annual insurance and property taxes, especially if the property is also in Texas, as those can really cut into your potential cash flow.

    Happy to help where I can!

    [email protected]417-427-2612
    1Reply
  • James Burciaga
    OP
    Rental Property Investor · Houston, TX · Member since 2017 · 16 posts · 11 votes
    2y
    Quote from @Jay Hurst:
    Quote from @James Burciaga:

    Hello All, I'm in Texas and I'm looking to pull some equity out of a rental property.  What type of loan should I be looking at?

    Home value $285k, rents for $3,000/mo.  No mortgage on the property.  Looking for $175k- 200k cash out on a long-term note 20-30 yr.


     Two choices:

    1. A full documentation 30 year fixed conventional loan. This loan would require you prove your income with tax returns, pay stubs, W-2's etc as well as the rental income on the subject property. This will be the best rate, lowest closing costs and no pre-payment penalty option. Many big lenders will tell you cannot do this in Texas, but they are incorrect. We do it everyday. 

    2. You can do a debt service coverage loan (DSCR) which will ONLY look at the rental income the property is bringing in. So, no need for paystubs, tax returns, w-2's etc. This option will have higher rates, generally higher closing costs and often with pre-payment penalties. DSCR loans are a good options IF you cannot qualify for option 1.


     Thanks Jay, I've contacted a few banks and credit unions and they tell me that they don't offer cash back or equity loans on investment property.  Are you saying you can? 

    0Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @James Burciaga:
    Quote from @Jay Hurst:
    Quote from @James Burciaga:

    Hello All, I'm in Texas and I'm looking to pull some equity out of a rental property.  What type of loan should I be looking at?

    Home value $285k, rents for $3,000/mo.  No mortgage on the property.  Looking for $175k- 200k cash out on a long-term note 20-30 yr.


     Two choices:

    1. A full documentation 30 year fixed conventional loan. This loan would require you prove your income with tax returns, pay stubs, W-2's etc as well as the rental income on the subject property. This will be the best rate, lowest closing costs and no pre-payment penalty option. Many big lenders will tell you cannot do this in Texas, but they are incorrect. We do it everyday. 

    2. You can do a debt service coverage loan (DSCR) which will ONLY look at the rental income the property is bringing in. So, no need for paystubs, tax returns, w-2's etc. This option will have higher rates, generally higher closing costs and often with pre-payment penalties. DSCR loans are a good options IF you cannot qualify for option 1.


     Thanks Jay, I've contacted a few banks and credit unions and they tell me that they don't offer cash back or equity loans on investment property.  Are you saying you can? 

    100% you can. We do it every day. 
    Hurst Real Estate, INC4.989 Reviews
    WebsiteView Page
    0Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    2y

    @James Burciaga   thanks ..use a standard  cash out refinance... if you plan on carrying the  debt for awahile  ( >  5 yrs)  .....consider the  lower rate. higher fee options ....if you plan to payoff the loan in the  short term- consider using the  highest rate with lowest  fee options  available 

    0Reply
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