Who offers HELOCs on investment property: finding financing

As a real estate investor, you likely understand the value of home equity better than most. Building home wealth over time is one of the most important aspects of any real estate investment. However, all that wealth tied up in your portfolio is illiquid – meaning it cannot help you purchase additional properties, perform maintenance and repairs, or diversify to other types of investments. 

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Luckily, home equity products such as the HELOC (home equity line of credit) exist to help homeowners pull cash out of their homes. While it can be more difficult to get a HELOC on investment properties than it would be to get a HELOC on your primary home – it’s certainly still possible. In this article, we’ll discuss who offers HELOCs on investment property, as well as tips and tricks for getting HELOCs on investment properties. 

Getting a HELOC on investment property: an overview

If you are already familiar with how HELOCs work for primary residences, you know what the product and process looks like for a HELOC on investment property. As with any other HELOC, you get a revolving line of credit – similar to a credit card, but backed by your home. 

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HELOCs most often have a 30 year term, split into two parts, the draw period and the repayment period. There is a variable interest rate. All of these terms also apply to HELOCs on investment properties. 

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However, there are a few key differences between getting a HELOC on a primary residence and getting a HELOC on investment property: 

Stricter requirements 

When applying for a HELOC on an investment property, you’ll find stricter requirements. This is because HELOC on investment property lenders are taking on more risk than those who only lend to primary homes. The reasoning behind this is that if a homeowner runs into financial difficulties, they’re far more likely to prioritize making payments on their personal home. 

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As a result, getting HELOCs on investment properties generally requires the following (as compared to getting a HELOC on your primary home): 

• A higher credit score – at least 680-700.
• A lower DTI (debt-to-income ratio) – under 43%, but lower is better.
• A strong documented income. 
• More home equity – your LTV will generally need to be uder 80%. 

Higher costs

One other way that HELOC on investment property lenders offset the added risk is via higher cost. This means higher interest rates. Depending on your profit margins and financial plan for your property, this can make borrowing a non-starter. 

Fewer lenders

Not every HELOC lender is willing (or qualified) to work with real estate investors. This means that you will have fewer lenders to choose from, and will need to do more research as part of your application process.

Who offers HELOCs on investment property?

While it may not be as easy to find a lender, plenty of major banks and local credit unions are willing to work with real estate investors. Make sure to include your regular mortgage lender, business bank, or credit union in the conversation. Financial institutions where you have an established relationship are often more willing to be flexible or offer preferable rates. 

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Some financial institutions known to be HELOC on investment property lenders include: 

• Wells Fargo
• Bank of America
• US Bank
• Flagstar
• PenFed Credit Union
• Alliant Credit Union
• Fifth Third Bank
• TD Bank

When does it make sense to get a HELOC on an investment property?

Your home equity is a valuable asset – as is your investment property. That means you need to think about all your financing options and proceed with caution before getting a HELOC on an investment property. Here are some scenarios where a HELOC on 

• Renovating your investment property – Whether you’re looking to prepare a property for sale or maximize its rent potential, using a HELOC for renovation is almost always a good call. You may also be eligible for certain tax benefits when you use a HELOC for home renovation. 
• Putting a down payment a promising new investment property – If you don’t have the liquid funds to put toward your next investment, a HELOC on an existing investment property can help you quickly cover the expense. Proceed with caution here – if you cannot make payments on all the secured financing involved, you risk losing multiple properties. 
• Creating an emergency fund for your rental property – The costs of managing an investment property can be unpredictable. By opening a HELOC for your property, you can make sure you’re prepared for burst pipes, vacancies, and anything else life throws your way. 
• Diversifying your investments – A HELOC can help provide you with funds to start a business, purchase stocks, and otherwise move some of your assets from real estate to a different investment vehicle. 

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If you are looking to pay for a vacation, a celebration, or something that will not contribute to your future, unsecured forms of financing such as personal loans and credit cards may be a more appropriate choice. 

Pros and cons of getting a HELOC on investment property

Let’s recap with some pros and cons of getting HELOCs on investment properties. 

Pros of getting a HELOC on your investment property

• No risk to your primary home 
• Hedge against unexpected costs of managing your investment
• Interest-only payments during the draw period 
• Flexible funding amounts 

Cons of getting a HELOC on your investment property

• Higher interest rates than HELOCs on an owner occupied property 
• More stringent credit requirements 
• Risk to your property if you default

Alternatives to consider

If a HELOC on your investment property is not the right move for you, there are other financing options available. Here are some other tools to consider: 

Home equity investment 

Home equity investments (HEIs) are a flexible home equity financing solution that makes a lot of sense for real estate investors and self-employed entrepreneurs. Depending on the HEI company, both primary residences and investment properties can be eligible. 

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With an HEI, you get a lump sum in exchange for a share of your property’s future value. It is a form of equity financing for home owners. There are no income or DTI requirements, no monthly payments and you do not need perfect credit to qualify. 

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To see if your investment property is eligible, prequalify in under 60 seconds here. 

HELOC on your primary residence 

If you are having trouble finding a lender  who offers a HELOC on investment properties, you always have the option of moving forward with a HELOC on your primary home. HELOCs on primary properties come with the following advantages: 

• Lower rates
• Less-stringent qualification requirements

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However, getting a HELOC on your primary property comes with the risk of losing your family home if you default. 

Home equity loan

A home equity loan is similar to a HELOC, except you get your funds in a lump sum instead of a line of credit. Additionally, home equity loans come with fixed rates instead of the HELOC’s variable interest rate, and don’t come with an interest-only period the way HELOCs do. 

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You can consider getting a home equity loan both on your primary home and your investment properties. 

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Home equity loans on rental properties come with the same challenges as HELOCs. Requirements will be more stringent, interest rates will be higher, and your choice of lenders will be slimmer. 

Cash-out refinance

A cash-out refinance is another popular choice for unlocking your home equity. With a cash-out refinance, you replace your existing mortgage with a larger one and apply the difference to your operating expenses or anything else you need. 

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Just as it can be a struggle figure out who offers HELOCs on investment property, you’ll face a similar challenge when taking out additional funds with a cash-out refinance. 

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However, cash-out refinances are often easier to qualify for than HELOCs, so the requirements may be less stringent even on an investment property. 

Personal loan

Sometimes, the unsecured route simply makes more sense. If you are having trouble qualifying for a HELOC on your investment property, don’t wish to risk your primary home, and need to cover an urgent expense related to your investment, a personal loan may be the best choice for you. 

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Personal loans are fast, and rates can be competitive for well-qualified borrowers. A burst pipe or a new furnace won’t pay for themselves, and if you cannot afford to take the time to find a lender who offers HELOCs on investment properties, a personal loan will almost certainly be faster. 

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Rates for personal loans are higher, and you’ll need a good credit score and a low DTI to get the best advertised rates. 

FAQs

Can you do a HELOC on an investment property?

Yes, while your selection of lenders may be smaller, and the qualification requirements are more stringent, you can do a HELOC on an investment property. 

What is the HELOC loan to value on an investment property?

The loan-to-value ratio (LTV) to get a HELOC on an investment property will most likely be smaller than an LTV on an equivalent property that is a primary residence. For an example, if a lender offers a maximum LTV of 85% for primary residences, the maximum LTV for an investment property will likely be somewhere around 80%. 

Can you write off HELOC interest investment property?

Depending on how you use your HELOC funds, you may be able to write of HELOC interest for your investment property. HELOC interest may be written off when it is used to improve the property in question. However, you’ll need to speak to a licensed tax professional to find out if your HELOC is eligible for tax benefits. 

What is the maximum HELOC amount on an investment property?

Your maximum HELOC amount on any property will depend on the value of the home and the first mortgage balance. Most HELOC on investment property lenders will require you to have at least 20% of equity in your property after the HELOC. 

Final thoughts

HELOC on investment property lenders can be more challenging to find, but no matter what, you have options. If you are a real estate investor who needs funds for managing your property portfolio, consider an HEI from Point – a home equity financing solution with no income requirements, no monthly payments, and no need for perfect credit – regardless of whether you’re applying for your primary residence or an investment property. 

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