Using Rental Equity for the Down Payment on Your Next Property

If you own a rental with equity in it, that equity can be the down payment on the next one. A second mortgage gets it out without touching the first loan.

How it works

You borrow against Property A with a second mortgage, either a lump sum or a line of credit. With a lump sum, the money becomes the down payment on Property B. Property A keeps its first mortgage and its rate. Property B gets its own financing. You now own two properties and carry the debt on both. This is equity used as capital for the next deal, the same logic behind a BRRRR refinance, except it does not wait for a rehab to finish.

Sizing it

Start with the cash Property B needs. Add the down payment, closing costs and any reserves the lender asks for. Then see what Property A can supply. An example, not a quote: a rental worth $400,000 with a $180,000 first can support a second of up to $140,000 at 80% CLTV ($400,000 x 80% = $320,000, minus $180,000). If Property B needs $100,000 in cash to close, that covers it. If it needs $150,000, it does not.

Typical terms are $50,000 to $1,000,000, a fixed rate from 6.99%, a 660 minimum FICO and up to 80% CLTV, subject to underwriting. Property A has to be a 1 to 4 unit non-owner-occupied residential investment property worth at least $100,000, and there is no seasoning requirement, so you do not have to wait out a holding period on Property A. The second mortgage calculator shows the maximum for your numbers, including the case where the room under CLTV is below the $50,000 minimum. Our guide to CLTV explains the math.

Sequence it before you write the offer

On our typical terms a second closes in 3 to 4 weeks, subject to underwriting, and we may use an automated valuation (AVM), though a full appraisal can still be required. A purchase contract has its own deadlines. Start the second before you are under contract on Property B, so the money is in your account when the contract needs it. Your proof of funds is stronger when the cash is already yours.

Questions to ask the lender on Property B

• Does it accept borrowed funds for the down payment?
• How does it count the new second-mortgage payment on Property A when it reviews your debts?
• Does it want to see where the funds came from, and in what form?

The lender on Property B sets its own rules on these points, so ask before you commit. If you are comparing how much cash a purchase takes, see our guide to the fix and flip down payment.

Check the cash flow with both payments

Property A now carries two payments. Run its rent against both before you close. If the rent only just covers the first, a second can turn a break-even rental into a loss each month. The same goes for Property B. Our guide to scaling a rental portfolio covers how that adds up as you add doors. You are also stacking debt, so keep reserves for a vacancy.

Business purpose, and what to check first

The second has to be used for a business purpose, and putting the down payment on an investment property is one. If you are weighing it against a refinance, see second mortgage vs cash-out refinance; for the interest, see whether second mortgage interest on a rental is tax deductible. If you own several rentals, pulling equity from several rentals without refinancing shows how to choose which one to borrow against. This is lending on a non-owner-occupied investment property, and we do not offer it on a primary residence or second home. Read your first mortgage documents too. The standard 1-4 Family Rider, which Fannie Mae requires on the one- to four-unit investment loans it buys (B8-4-01, accessed 2026-10-06) and which some other lenders also use, bars a junior lien without the first lender's written permission. The clause itself is explained in our second lien behind a DSCR or conventional first guide. In Texas, whether a property is a homestead turns on use and intent, so confirm Property A is not one (see our Texas guide). For anything legal, talk to a Texas real estate attorney.

Business-purpose lending only, on non-owner-occupied investment property. Not a commitment to lend. Terms shown are typical and subject to underwriting.