Can I take out a HELOC on an investment property?

A couple lean over their kitchen island while using a laptop to research HELOCs for investment properties.Image: A couple lean over their kitchen island while using a laptop to research HELOCs for investment properties.

In a Nutshell

You may be able to take out a HELOC on an investment property. But keep in mind that not many lenders offer these types of loans. Those that do tend to have stricter approval requirements and to charge slightly higher interest rates when compared to HELOCs taken out for primary properties.
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When you want to borrow cash based on your home equity, a HELOC on an investment property might make sense.

But keep in mind that these HELOCs, or home equity lines of credit, are typically tougher to qualify for than HELOCs for primary properties — and fewer lenders offer them.

We’ll review the pros and cons of taking out a HELOC on an investment property as well as alternatives to explore.



Can I get a HELOC on an investment property?

A HELOC is a revolving line of credit secured by the borrower’s equity in a property. Typically, the borrower doesn’t need to begin making payments until they’ve started spending money — similar to a credit card.

By taking out a HELOC on an investment property, you may be able to pay for improvements to your property or finance personal debts like school expenses or medical bills.

Keep in mind that investment property HELOCs are generally considered riskier for lenders than HELOCs for primary homes, so your rate will likely be higher. If you’re in the market for a HELOC on your investment property, you’ll find fewer options available.

For example, Boeing Employees’ Credit Union offers HELOCs for primary, secondary and vacation homes as well as investment and rental properties — but each has a different APR. A HELOC on a primary residence has the lowest starting rate, while a HELOC for an investment property has the highest starting rate.

How do I get a line of credit for an investment property?

The process of applying for HELOCs on primary and investment properties is similar. You should expect to provide documentation like tax returns, pay stubs and signed leases. The lender may also require an appraisal.

If you’re approved, you’ll receive a written commitment of terms and conditions before closing on your HELOC.

Meet strict requirements

When evaluating your HELOC application, lenders typically consider the lendable equity in the home, your credit rating and your overall ability to repay the loan. For an investment property, though, requirements tend to be stricter since it’s not a primary residence — and lenders usually see that as posing a higher chance of default.

Shop around for lenders

Not all lenders offer HELOCs for investment properties, so it’s important to shop around. Consider your current lender or mortgage broker, small banks and local credit unions. As part of your research, you can also ask members of real estate investing forums for lender recommendations.

Negotiate

If you don’t find an obvious winner through your research, you can try contacting lenders who have already made you offers. If you didn’t find their terms satisfactory, ask for more competitive bids or tell them about the other offers you’ve received to see if they can beat them.

Pros and cons of getting a HELOC on an investment property

Here’s a quick overview of potential upsides and downsides when it comes to these types of HELOCs.

Pros

  • Only repay what you use, plus interest
  • Repay and reuse the credit line as needed during the draw period
  • Interest rates are likely to be lower than a credit card or personal loan
  • You may be able to write off a portion of the interest you paid for taxes if you use the money for home renovations

Cons

  • It’s more difficult to find lenders that offer these types of HELOCs
  • Qualifying for these types of HELOCs is more difficult than on a primary residence
  • The interest rates tend to be higher than for HELOCs on primary properties
  • Interest rate is often variable over time, meaning rates can increase quickly
  • You could lose your property to foreclosure if you default on the loan

Alternatives to HELOCs

Don’t think a HELOC on an investment property is the right fit for you? Here are some alternatives to consider.

  1. Cash-out refinance: This option lets you refinance your mortgage for a larger amount than what you owe, receiving the difference in cash. However, you may end up with a higher interest rate.
  2. Unsecured personal loan: Since these loans are riskier, interest rates tend to be higher. You might choose this option if you don’t have much equity.
  3. Credit card: As with an unsecured personal loan, you might go this route if you’re short on equity. Shop around to find the lowest interest rate you can, since credit card interest rates can be high.

About the author: Dina Cheney is a freelance writer and the author of six books. She’s contributed to publications, including Good Housekeeping, Health, Men’s Health, Parents, and SELF. When not writing, Cheney cooks, lifts weights, an… Read more.