Can you use a HELOC on an investment property?
Yes, you can use a HELOC on an investment property. Using a HELOC on an investment property to improve or upgrade the property could increase its value or attract prospective tenants.
A HELOC allows you to tap into the equity you’ve built up in a property without having to sell it. With a typical HELOC, you will have two periods: a draw period and a repayment period. During your draw period, you can access your home’s equity up to a certain amount while paying only interest. After that, you will enter the repayment period, during which you will need to pay back your loan principal and interest.
Our HELOC gets you an upfront payment, and as you pay it back, you could make additional draws. If you qualify, HELOCs can be used on both primary and investment properties alike. Most borrowers will use a HELOC on their investment property to make improvements, increasing the home’s value and potentially bringing in new renters.
Your HELOC payments will be on top of any monthly mortgage payments you may have.
To see what a HELOC would look like for your investment property, connect with a lender and start your application today!
HELOC on investment properties vs. primary homes
Lenders typically see HELOCs on investment properties as more risky than HELOCs for a primary residence. And because they are seen as riskier, the qualifications for a HELOC on an investment property tend to be stricter.
Since you will have more than one property to make payments on, lenders could see you as more likely to default on the payments. To help ease their mind, a lender may seek higher fees and interest rates.
Requirements for HELOCs on investment properties
The requirements for your investment property’s HELOC will be stricter than for your primary property’s HELOC. If you are hoping to qualify for a HELOC on a non-owner-occupied property, these are some of the requirements:
- Meet your lender’s minimum credit score
- Debt-to-income ratio below 43%
- Proof of income on rental property
- 20%-25% home equity, depending on lender
- Six months of mortgage payments in reserve
- Stricter lending criteria
Pros and cons of using a HELOC on investment properties
Using a HELOC on an investment property can be beneficial to both the owner and the property, but they might not be the right choice for everyone. Here are a few pros and cons to using a HELOC on an investment property.
Pros
- Accessible funds to draw from
- Potentially lower interest rates than other loans
- Don’t need to sell your property to access equity
- Possibility for tax benefits
Cons
- Variable interest rates may increase over time
- Defaulted payments can lead to foreclosure
- Higher interest rates than HELOC for a primary residence
- Issues with rental income can lead to cash flow problems
Using a HELOC as a down payment for an investment property
Using a HELOC on your primary residence as a down payment option for an investment property is an excellent way to leverage your current home’s equity into potentially boosting your passive income. A HELOC does increase your debt-to-income (DTI) ratio, which can make it more challenging to get a home loan for an investment property.
Alternatives to an investment property HELOC
If you don’t think using a HELOC on an investment property is the right move for you or if you might not qualify for the requirements, these are a few alternative options you can consider.
- Primary residence HELOC: These tend to come with more favorable loan terms and requirements than an investment property HELOC.
- Investment property home equity loan: If you have equity built in your investment property, you can receive a lump-sum payment with a home equity loan.
- Cash-out refinance on investment property: A cash-out refinance* on an investment property replaces your mortgage with a new loan at higher amount, and the difference comes back to you in cash.
- Personal loans: Those who qualify for personal loans get a one-time loan that they will have to start repaying immediately. Personal loans can be secured or unsecured. If you choose a secured personal loan, you can use your investment property as collateral.
How to get a HELOC on an investment property
To get a HELOC on your investment property and take advantage of your home’s equity, get in touch with a lender today. Lenders will review your financial situation, check the equity you have in your investment property and look at your primary home payments, if you have them.
Lenders will show you what your HELOC will look like so you can start planning for how to use your funds. After that, it typically takes two to six weeks to get approved, though it can take longer.
If you are ready to start accessing the equity in your investment property through a HELOC, start here and talk with a lender today!
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Owning does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error-free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Owning. Owning its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
Owning’s HELOC is a fixed-rate open-end product using your home as collateral. Not available in all states. Go to owning.com/HELOC for information including important property and borrower requirements and restrictions which impact rate and max available loan amount. Subject to approval.
*Using funds from a Cash-out Refinance to consolidate debt may result in the debt taking longer to pay off as it will be combined with borrower’s mortgage principle amount and will be paid off over the full loan term. Contact Owning for more information.