How to Get a HELOC on an Investment Property
A home equity line of credit (HELOC) is a great way to access cash when you need it. But getting a HELOC on an investment property isn’t as easy as with your primary residence.
Not all lenders offer investment property HELOCs, and those who do have stricter lending criteria. But with a little effort and knowing where to look, finding a HELOC for your rental may be simpler than you think.
Find an investment property mortgage lender.
Finding an Investment Property HELOC Lender
Most nationwide banks and lenders don't offer HELOCs on investment properties. Instead, the majority of investors will find the best source of rental HELOCs to be local banks and credit unions in the area where their investment home is located.
Branch managers and loan officers at smaller financial institutions have more flexibility when approving unconventional loans like investment property HELOCs. If you need a line of credit, your best bet could well be to meet with a banker in person at a local branch.
Still, some larger lenders offer investment property HELOCs across several states and regions. Here are a few institutions that may be worth checking out:
TD Bank
Markets Served: CT, DC, DE, FL, ME, MD, MA, NH, NJ, NY, NC, PA, RI, SC, VT, VA
TD Bank is one of the nation's largest lenders offering investment property HELOCs. It operates in fifteen states and the District of Columbia. Lines of credit are available for up to $500,000 on investment properties. Investors with a personal checking account with TD Bank may be eligible for a 0.25% relationship discount on their HELOC rate.
BMO Bank
Markets Served: AZ, CA, CO, FL, IA, ID, IL, IN, KS, MN, MO, NE, ND, NM, NV, OK, OR, SD, UT, WA, WI, WY
BMO Bank is a Montreal-based financial institution with locations throughout the United States. Following their 2023 acquisition of Bank of the West, BMO Bank became one of the country's most widespread investment property HELOC lenders, serving 22 states from Florida to California.
Hurst Lending
Markets Served: AL, CO, FL, GA, ID, IA, LA, OK, OR, PA, VA, TX, WA
Hurst Lending originates mortgages and HELOCs in 13 states, from the Southeast to the Pacific Northwest. Instead of a traditional investment property HELOC, Hurst Lending offers investors an Equity Leverage Line secured by up to four of their properties. This line of credit can be used to purchase new investments, both long-term rentals and short-term flips.
Why Open a HELOC on an Investment Property?
You can use the funds available through your line of credit for any purpose that you see fit. However, most investors who open a HELOC on a rental property plan to either:
Finance costly improvements such as a roof replacement, update to major appliances, or complete renovation between tenants, or;
Fund the down payment on their next investment property
HELOCs allow you to access the equity in your investment property on your own schedule. Unlike a traditional loan, which provides an upfront lump sum, a HELOC lets you borrow against your line of credit as often as you need throughout the initial draw period.
Plus, you only owe interest on the amount borrowed.
Similarly, using a HELOC to fund your next investment allows you to take your time and wait for the perfect opportunity. There's no rush, as the HELOC draw phase can last up to ten years. You need to make monthly payments only after you've pulled money out for the new purchase.
How Much Equity Do You Need for a Rental Property HELOC?
You’ll need more equity to take out a HELOC on an investment property than you would with other types of residential real estate. Most investment property HELOCs are limited to 75% to 80% of the home’s appraised value. Compare that with some primary residence HELOCs that let you tap into 100% of the home’s value.
This means that you'll need at least 20% to 25% equity left over beyond the line of credit you apply for.
For Example: If your rental property is appraised at $250,000, an 80% LTV HELOC would let you borrow up to $200,000 minus closing costs and any existing mortgage you have. If you have an outstanding loan of $125,000, you could qualify for a line of credit as high as $75,000.
Investment Property Appraised Value | $250,000 |
80% LTV HELOC Maximum | $200,000 |
Existing Mortgage | -$125,000 |
Maximum Line of Credit | $75,000 |
Keep in mind that the amount of the HELOC you qualify for will be based on not only your property's equity but also your income and total debt.
Qualifying for an Investment Property HELOC
HELOCs typically have stricter requirements than traditional mortgages. HELOCs take second position behind other loans, meaning lenders are less likely to recoup their funds if you quit paying on your property.
With investment property HELOCs, the risk to lenders is even higher. Borrowers are more likely to default on a second home or rental property than they are their primary residence. As such, lenders often only issue HELOCs on investment properties to the most well-qualified applicants.
Credit Score
Most lenders want a credit score of at least 700 for investment property HELOCs. Some borrowers may be able to qualify with a lower score – especially when dealing with a local bank or credit union – but they can expect higher rates and more financial scrutiny.
Debt-to-Income Ratio
Each HELOC lender will have their own criteria for approving applicants. Still, most will aim for a maximum debt-to-income ratio of 43%. HELOC underwriters evaluate the investor's personal income and debt obligations, not the property’s income.
In most cases, however, you can still use your investment’s stable rental income to help you qualify for the line of credit.
Required Reserves
For a HELOC on an investment property, you should have at least six months of property-related expenses in reserve. Depending on your lender and individual borrowing needs, you may be required to show up to 18 months’ worth of funds.
Check your eligibility for an investment property loan. Connect with a lender now.
Pros & Cons of Getting a HELOC on an Investment Property
Taking out a HELOC on an investment property can be an effective way to use your equity for home improvements or to expand your portfolio. But it's important to weigh both the good and the bad before opening a line of credit on your rental.
Pros of Investment Property HELOCs
Some of the advantages of investment property HELOCs include:
Access the funds you need without putting your primary residence at risk
You don’t have to use your equity all at once
You only pay interest on the amount of equity borrowed
Lower rates than unsecured financing such as personal loans, business loans, or credit cards
Cons of Investment Property HELOCs
On the other hand, some downsides of a HELOC on an investment property include:
Lenders are harder to find – you’ll often need to go through a local bank or credit union
You’ll need more equity than if you were taking out a HELOC on your primary residence
Stricter lending requirements
Higher rates than first-lien mortgages and primary residence HELOCs
Having a variable rate could cause your payments to increase if interest rates rise
Some lenders require that investment property HELOCs have a first lien position. In most cases, this means you must own the home outright or be willing to wrap your existing loan into the HELOC
Alternatives to Investment Property HELOCs
Getting a HELOC is just one way of accessing your investment property's built-up equity. For some owners, it could be the best option, but there are a few alternatives that you might want to consider instead.
Take Out a HELOC on Your Primary Residence
You may be better off taking out a HELOC on your primary residence. Most lenders offer primary residence HELOCs for up to 85% of a property’s appraised value, but it’s possible to find a line of credit with an LTV as high as 100%.
Wrap Your Existing Mortgage Into a Cash-Out Refinance
It could make sense to do a cash-out refinance and wrap in your existing mortgage. Expect similar equity and qualifying requirements to a HELOC for a cash-out refinance on an investment property, although finding lenders offering these loans will be much simpler.
Apply for a Business Loan
If you’re an established investor with a portfolio of properties, consider applying for a business loan instead. Real estate investor loans are generally secured by cross-collateralizing your assets. You may be eligible for a lower rate and a larger loan or line of credit than by opening a HELOC on a single investment property.
Find an Investment Property HELOC Today
A home equity line of credit can help you finance renovations to your rental or even fund your next investment purchase.
However, finding a lender that offers HELOCs on investment properties can take time and effort in certain areas. In many cases, the best strategy to get a rental property HELOC is to meet with the loan officers or branch managers at your local community banks and credit unions.
Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
