- Not all lenders offer HELOCs for investment properties, and those who do will likely have stricter qualification requirements.
- With most companies, investment property HELOCs allow you to access between 70% and 80% of the home’s appraised value.
- HELOCs on rental properties tend to have higher interest rates than those secured by a primary residence.
The equity you’ve built up in your investment property can be a powerful tool for helping you achieve your financial goals, but you need to be able to access this equity to leverage it to your advantage.
One way to do so is with an investment property HELOC. We’ll cover the specifics of this unique type of home equity line of credit, as well as other borrowing options.
Can You Get a HELOC on Rental Property?
A HELOC is a revolving line of credit secured by real estate equity. While most people associate home equity lines of credit with their primary residence, these mortgages are also available for other property types – including investment and rental homes.
However, not all lenders offer HELOCs for investment properties, and those that do usually have stricter qualification requirements due to the higher risk.
But for property owners who qualify, an investment home HELOC can be a practical source of funding to:
- Make improvements to your property to command a higher level of rent
- Leverage your equity to purchase another home and grow your portfolio
- Start your own business or invest in other high-return opportunities
Note: Refi.com does not currently offer HELOCs for investment or rental properties.
How Much Can You Borrow With an Investment HELOC?
HELOCs on investment properties typically require more equity than on a primary residence.
While the total amount you can borrow varies based on the lender, most have a maximum loan-to-value limit of 70% to 80% of the property’s appraised value. Often referred to as the combined loan-to-value (CLTV) limit, this cap includes any amount owed on your primary mortgage.
For example, you apply for an investment property HELOC with a maximum CLTV of 80%. Your rental home has been appraised for $300,000, and you have a first-position loan with a remaining balance of $180,000.
In this scenario, you could potentially qualify for a line of credit of up to $60,000, which, when combined with your primary mortgage, would total $240,000 – 80% of your property’s value.
Keep in mind that some lenders may also have hard limits on the size of investment property HELOCs they offer. One company may allow lines of credit up to $200,000, while another may have a maximum limit of $500,000. Still, a third lender may have no dollar limit at all.
How to Get a HELOC for a Rental or Investment Property
Unlike traditional mortgages, which generally follow set program guidelines, each individual lender establishes HELOC requirements.
As a result, the qualifications can vary significantly from one company to another.
However, as a broad rule of thumb, you can expect to need:
- Credit Score: Minimum credit score of 700 to 720
- Debt-to-Income (DTI) Ratio: Total debt-to-income ratio of 43% or lower
- Maximum CLTV: 70% to 80% of the investment property’s value
- Cash Reserves: Funds in reserve equal to six months or more of property-related expenses
- Ownership: While some lenders offer investor HELOCs on properties held in an LLC, most require the home to be titled to you personally
Pros and Cons of Using a HELOC for an Investment Property
There are both advantages and disadvantages of taking out a HELOC on an investment property. Here’s a brief overview of some prominent pros and cons, each explained in a little more detail down below.
| Pros | Cons |
| Convenient and flexible source of funds | Fewer lenders offer investment property HELOCs |
| Does not put your primary residence at risk | Higher rates than with a primary residence |
| Only pay interest on the amount used | Stricter qualification requirements |
| Interest-only payments during the draw period | Variable interest rates can increase costs |
Investment Property HELOC Pros
- Convenient and Flexible Source of Funds: With a HELOC, you can borrow against your equity, repay the funds, and continue using your line of credit as many times as you need during the draw period, which typically lasts up to ten years.
- Does Not Put Your Primary Residence at Risk: Since your main home does not secure an investment property HELOC, your primary residence isn’t at risk in the event you become unable to make your loan payments.
- Only Pay Interest on the Amount Used: HELOCS only require you to pay interest on the equity used – not the entire available line of credit. If you don’t carry a balance, you won’t pay any interest charges.
- Interest-Only Payments During the Draw Period: Like all home equity lines of credit, rental property HELOCS are divided into two parts: the initial draw period and the secondary repayment period. In most cases, you are only obligated to make interest payments during the draw phase of the loan.
Investment Property HELOC Cons
- Fewer Lenders Offer Investment Property HELOCs: Because they’re a riskier and more niche product, not all mortgage companies and financial institutions offer investment property HELOCs. Local banks and credit unions are often the best source for these types of loans.
- Higher Rates Than With a Primary Residence: Investment property HELOCs come with higher interest rates than lines of credit secured by a primary residence. This is because in the event of financial hardship, borrowers are more likely to quit paying on an investment property than their personal home.
- Stricter Qualification Requirements: Qualifying for a HELOC on rental property can be more challenging than other types of mortgages due to higher credit score minimums, lower allowable debt-to-income ratios, and greater equity requirements.
- Variable Interest Rates Can Increase Costs: Since HELOCs generally have adjustable rates, fluctuations in the interest rate market can cause payments to change over time. If overall rates rise down the road, you could pay more in financing costs than you initially anticipated.
Investment Property HELOC Alternatives
Since rental property HELOCs can sometimes be challenging to find – and may not be the right solution for every investor – let’s go over a few alternatives to consider instead.
Cash-Out Refinance
A cash-out refinance replaces your existing primary mortgage with a new, larger loan, allowing you to receive a lump sum amount as part of the closing process. It’s a lot easier to find lenders offering cash-out refinances than investment property HELOCs.
In most cases, the maximum allowed loan-to-value is similar, from 70% to 75%, depending on the number of rental units in the home. However, credit score and DTI requirements may be slightly more relaxed.
Investors looking to access equity typically consider a cash-out refinance instead of a HELOC when:
- They’re not able to find a lender offering rental property HELOCs in their area.
- A cash-out refi would offer more favorable terms than their existing mortgage.
- They can qualify for a refinance but are having trouble getting approved for a HELOC.
Home Equity Loan
A home equity loan or HELOAN is a type of second mortgage that provides a lump sum of cash rather than access to an ongoing line of credit. Like HELOCs, not all lenders offer home equity loans on investment properties, and you can expect similar qualification requirements and loan limits from those who do.
Unlike HELOCs, which usually have adjustable rates and distinct draw and repayment periods, HELOANs function more similarly to traditional home loans. This typically includes a fixed interest rate and fully amortized monthly payments.
You might consider an investment property home equity loan if:
- You know exactly how much equity you want to tap and only anticipate needing it once.
- You plan to use the funds in the near future rather than over a period of years.
- You prefer stable and predictable payments that remain constant for the life of the loan.
Unsecured Personal Loan
Personal loans are unsecured loans issued based on your credit report and financial profile, rather than secured by collateral such as an investment home. As there’s no need for an appraisal or other steps associated with taking out a mortgage, personal loans can often be funded within a matter of days.
Since there’s no collateral, personal loans tend to have higher interest rates than HELOCs or HELOANs. However, interest costs are still likely to be lower than those found with credit cards or other types of unsecured debt.
Opting for an unsecured personal loan might make more sense when:
- You don’t want to put your investment property at risk.
- You don’t have enough equity to qualify for a HELOC.
- You’re comfortable repaying the funds over a shorter period, typically two to seven years.
Hard Money Loan
Hard money loans are a type of real estate loan designed specifically for investors with short-term financing needs. These mortgages are issued by private lenders and are underwritten with a greater emphasis on the value of the property rather than the financial qualifications of the borrower.
Because of their higher interest rates and short-term nature, hard money loans are more popular with fix-and-flip investors than they are with long-term rental holders. However, they can still be a source of funding for borrowers confident in their ability to repay or refinance the loan by the time it comes due, generally within one to two years.
You might consider a hard money loan if:
- You need quick access to cash, but aren’t able to qualify for other loans or mortgages.
- You plan to make improvements to your property that will allow you to sell it or refinance into a long-term mortgage.
- You plan to use your equity to finance a fix-and-flip investment with a short holding period.
Investment HELOC Frequently Asked Questions
Can You Get a HELOC on Multiple Investment Properties?
Yes, you can have HELOCs on multiple properties at the same time, although each HELOC will be tied to an individual home. If you’re looking to leverage the equity you have across numerous properties, consider a portfolio loan, which allows you to use more than one rental home as collateral.
How Does an Investment Property HELOC Differ From a HELOC for a Primary Residence?
Investment property HELOCs can be more difficult to find and qualify for than a HELOC on a primary residence. Plus, because of the additional risk associated with investments, you’ll likely pay higher interest costs and be able to access less equity than if you used your personal home.
Are Interest Rates Higher or Lower for Investment HELOCs?
Compared to HELOCs for primary residences, investment HELOCs tend to have higher interest rates because of the lender’s added risk. However, compared to alternative financing options such as personal loans, hard money loans, and credit cards, borrowers will likely pay less with an investment HELOC.
Is an Investment HELOC Right for You?
While it is possible to get a HELOC for an investment property, the process isn’t always as simple as taking out a line of credit on your primary residence. Not all mortgage companies offer HELOCs for rental properties, and those that do are generally more selective when underwriting borrowers. Still, they remain a practical choice for accessing built-up equity.
To find out more about your options for tapping the equity in your investment home, apply with Refi.com today.
