Can You Get a HELOC For an Investment Property?

If you own an investment property, you know it can be a valuable asset for building wealth. But did you know you might be able to use the equity in that property to fund other financial goals? This is where a home equity line of credit, or HELOC, comes into play.

Many people open this sort of account on their primary homes, but what about a HELOC on investment property? We're here to walk you through how it works, what to expect, and how you can leverage your property's equity.

What is a HELOC?

A home equity line of credit (HELOC) is a form of revolving credit allowing you to borrow against the equity you have built up in your home. Consider it similar to a credit card, but it’s backed by your real estate.

Instead of receiving a single lump-sum, like with home equity loans, a HELOC gives you access to a line of credit that you can draw from as needed. Throughout the draw period, spanning anywhere between 5-10 years, you have the ability to borrow funds up to your credit limit. After the draw period ends, all withdrawn funds along with accrued interest must be repaid back to the lender.

What qualifies as an investment property?

Before we go further, let's clarify what we mean by an "investment property." An investment property is any real estate you own that is not your primary residence. Its main purpose is to generate income, either through rent or by appreciating in value over time.

Examples of this include:

• A single-family home you rent out to tenants.
• A multi-unit building, like a duplex or apartment complex.
• A vacation home that you rent out for part of the year.

Lenders often have different requirements for a HELOC on investment property compared to a primary residence, so understanding this distinction is important.

Can you get a HELOC on an investment property?

Yes, you can get a HELOC on an investment property. However, the process and requirements are often more strict than getting one on your primary home. Lenders view loans on investment properties as higher risk, so they take extra precautions.

Here’s what you can generally expect when applying for a HELOC on investment property:

Borrowing ability

For a primary residence, you might be able to borrow up to 85% of your home's value. With an investment property, lenders typically require you to have more equity built up and might only allow you to borrow up to 70-75% of the property's value.

Higher credit score

You’ll likely need a higher credit score to qualify for a HELOC on investment property. They will also want to see a strong credit history.

Higher interest rates

Because the loan is considered riskier, the interest rates for an investment property HELOC are usually higher than those for a primary residence.

Debt-to-income (DTI) ratio Lenders will look closely at your DTI ratio to ensure you can handle the additional monthly payments. They'll consider income from your job as well as any rental income from the property. While the requirements are stricter, getting a HELOC provides a flexible way to tap into your property's value, giving you the resources to expand your portfolio, make improvements, or achieve other financial milestones.