Can you take out multiple home equity products on the same property?

Your home equity can help you pay off debt, cover an emergency expense, fund home renovations, start a business, or meet just about any other goal you might have.

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If you’d like to tackle more than one goal at the same time, you may wonder whether you can take out multiple HELOCs or other home equity products. Fortunately, this is a possibility, depending on your unique situation.

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In this article, we'll answer the popular question of "can you have 2 HELOCs on the same property," the pros and cons of doing so, and what other equity products you can use in tandem.

Can you take out multiple home equity products?

Yes - there is no legal limit on the number of home equity products you can have at once. As long as you meet the lender's eligibility criteria and have enough equity in your home, you may take out more than one HELOC, home equity loan, or home equity investment.

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If you have good credit and a significant amount of equity, this strategy can give you access to more funds and allow you to meet several goals at the same time. While it may be tempting to go ahead and take advantage of multiple HELOCs or other products, doing so isn't always a good idea.

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Depending on your budget and particular situation, you may increase your debt load and take a toll on your finances. After all, it's much more difficult to repay several home equity products than one.

Types of home equity products

Having multiple home equity products on one property is typically referred to as "taking out a second" or even a "third" lien on your property.

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Each additional product may come with higher interest rates, fees, and closing costs, as lenders perceive a higher risk in lending on a property with multiple liens.

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Finding a lender willing to approve another home equity loan or HELOC is often difficult but not impossible. Here's what to know:

Home equity loans

Also known as second mortgages, home equity loans can allow you to borrow money against the equity in your home. They come with fixed interest rates and repayment terms ranging from one to thirty years.

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With a home equity loan, you’ll receive a lump sum of cash upfront and be able to use it in any way you wish. Due to its fixed rate, you’ll enjoy predictable payments that you can easily budget for in advance.

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To qualify for a home equity loan, you should have a minimum credit score of 680 and a debt-to-income ratio of no more than 43%. It’s also important that you own at least 15% to 20% of the equity in your home.

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If no lender is willing to extend a second home equity loan on your property, consider refinancing your home equity loan. Refinancing will allow you to pay off the first loan while securing a new equity product.

Home equity lines of credit (HELOCs)

Home equity lines of credit, or HELOCs, are similar to credit cards. They’re revolving lines of credit you can use to cover a variety of expenses. Once you’re approved for a HELOC, you may withdraw funds as much or as little as you’d like, up to your set credit limit. You’ll only pay interest on the amount you borrow. Most HELOC lenders look for a credit score of at least 680 and 15% to 20% home equity in your home.

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If you opt for a HELOC, you may lock in flexible repayment terms and might be able to claim tax-deductible interest. On the downside, your interest rate may be variable, meaning it can increase over time. Also, if you overborrow, you may find yourself in a cycle of debt.

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How many HELOCs can you have on your property? Ultimately, this will depend on how much equity you own and the lenders willing to work with you. Similarly to a home equity loan, you can also refinance a HELOC if lenders are not willing to offer you multiple HELOCs on the same property.

Home equity investments (HEIs)

Home equity investments (HEIs) offer a lump sum of cash without any restrictions or a monthly payment in exchange for a portion of your home’s future appreciation. If you go with an HEI, you’ll repay the amount you borrow plus a small percentage of your home’s future appreciation at any time during a 30-year term. You may do this through a home sale, refinance, or another funding source.

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An HEI comes with many benefits like a lump sum payout, no monthly payments or prepayment penalties, and no income requirements. However, you do need a credit score above 500 and sufficient equity to qualify.

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If you choose to take out an HEI, the funds will pay off your first equity financing product (home equity loan, HELOC, or even another HEI) and you pocket the difference. Then, your 30-year repayment term, with no monthly payments, begins.

Things to consider

Here are a few things to keep in mind before you sign on the dotted line and commit to multiple HELOCs, home equity loans, and/or HEIs.

• Financial goals and needs: Think about what you hope to accomplish financially. If you need to pay for a roof repair but want to renovate your kitchen at the same time, multiple home equity products might make sense.
• Ability to manage additional debt: Do the math and find out if you can comfortably repay more than one home equity product. If finances are tight or you’re living paycheck to paycheck, this may not be feasible.
• Impact on credit score and financial stability: Multiple home equity products will affect your credit. If you repay them in full and on time, your credit score may go up. On the flip side, if you default on one or all of the products you take out, your credit score will take a hit.
• Multiple products vs refinancing: Taking out another lien on your home is not the only way to secure more cash. In some cases, refinancing the debt may be more cost-effective and less risky than keeping multiple home equity products on your home.

Risks and cautions

Just like any other financial decision, it’s important to consider the risks involved with multiple home equity products, such as:

• Excessive debt: Depending on how much you borrow and your current financial situation, multiple HELOCs can lead to an overwhelming amount of debt that’s difficult to pay back.
• Higher borrowing costs: You'll likely face higher fees, rates, and closing costs. This makes your second home equity product more expensive, reducing your purchasing power.
• Risk of foreclosure: If you stop making payments, the mortgage lender may put your home into foreclosure. This can be a very stressful situation, especially if it’s your primary residence and you don’t have another place to live.
• Loan-to-value ratio considerations: Your loan-to-value ratio shows how much you owe on your home compared to what it’s worth. To calculate it, divide your mortgage balance by the current appraised value of your property. Most home equity loan products require a ratio of 85% or less. A higher ratio can make it difficult for you to take out multiple home equity loans at once.

Frequently asked questions

Do you need to use the same lender?

You may take out multiple home equity loans with the same lender or different lenders. If you use the same lender, however, you might find the process to be faster and more straightforward. Your chances of approval might be higher as well.

Can you use one product to pay off another?

Depending on the lender(s) and products involved, you may be able to use one home product to pay off another. For example, you can potentially put the proceeds of a home equity loan towards a HELOC repayment. Home Equity Investments generally allow you to pay off any outstanding equity products and keep any cash left over.

What can I do with multiple home equity products?

Home equity products are versatile, meaning you can use them to pay for any emergency or planned expenses. Several popular uses include debt consolidation, home improvements, college, and vacations.

Can you take out multiple home equity products on multiple properties?

Yes, you can generally find lenders willing to offer an HEI, home equity loan, or HELOC on a second home. Requirements are more stringent and lenders sparse, so you'll have to shop around.

Final thoughts

You may be able to take out more than one home equity product. But whether or not you should depends on your specific circumstances and goals. Before you take the plunge, weigh the pros and cons of this strategy. If you do decide to pursue it, shop around to find the ideal products for you. Best of luck!