Can You Get a HELOC on an Investment Property? Complete 2026 Guide
FACT-CHECKEDFACT-CHECKEDInvestment property HELOCs are available but require significantly tighter qualifications: credit scores of at least 700 to 720, 75 to 80% max LTV, and 6 to 12 months of cash reserves versus the more relaxed standards for primary residences. Bankrate put the national average HELOC rate at 7.26% as of September 9, 2026, though investment property lines typically price higher.
Key Takeaways
- Investment property HELOCs are possible but require stricter qualifications than primary residence HELOCs, including minimum credit scores of 700-720 (some lenders set the bar higher) and maximum loan-to-value ratios of 75-80%
- According to Bankrate, the national average HELOC rate stood at 7.26% as of September 9, 2026, well below the 8.05% average of September 2025
- Lenders view investment property HELOCs as higher risk, resulting in higher interest rates, more fees, and fewer lender options compared to traditional HELOCs
- You need at least 20-25% equity in your investment property to qualify, with many lenders requiring 6-12 months of cash reserves to cover potential vacancies
- The draw period for investment property HELOCs typically lasts 5-10 years with interest-only payments, followed by a repayment period of 10-20 years
- Alternative financing options include cash-out refinancing, home equity loans, or using a HELOC on your primary residence instead
- Interest on investment property HELOCs may be tax-deductible if funds are used for capital improvements, though you should consult a tax advisor to confirm eligibility
What Makes Investment Property HELOCs Different
A lot of investors assume a HELOC on a rental property works just like the one on their primary home: same application, same pricing, same odds of approval. The mechanics are similar, but the qualifying standards, the rate, and the way a lender sizes up the risk are all different. That's what this guide walks through, so you know what you're on the hook for before you apply.
In theory, a home equity line of credit on an investment property works the same way as a HELOC on your main home. You're using a revolving line of credit to borrow against the equity you've built up in the property. The Consumer Financial Protection Bureau's HELOC guidance says that the structure could have an initial draw period where you can take out money as you need it and only pay interest. This period usually lasts 5 to 10 years. After that draw period is over, you start the repayment phase, during which you pay back both the principal and the interest, usually over a period of 10 to 20 years.
But this is where it changes. Lenders think that investment properties are riskier than primary residences. If you get into financial trouble, you'll put keeping a roof over your head ahead of worrying about your rental property. Lenders know this, which is why investment property HELOCs come with extra protections and costs.
Bankrate's guide to investment property HELOCs and Experian's lending requirements overview put the credit score floor for an investment property HELOC at roughly 700 to 720, while primary residences can often qualify with scores of 650 to 680. For investment properties, the highest loan-to-value ratio is 75 to 80%. For primary homes, it can be as high as 85 to 90%. Also, your debt-to-income ratio requirements are stricter. Lenders typically cap DTI at 40% to 50% for investment property lines, and they will usually count only part of your rental income toward it, which makes the ratio harder to hit than the 43% cap common on primary residence HELOCs.
The Difficulty of Finding Lenders
On a personal level, not all lenders offer HELOCs for investment properties. In fact, a lot of big lenders, even some of the biggest names in the business, don't even offer this product. If you're looking into home equity options for your investment strategy, AmeriSave's home equity solutions can help you figure out what types of financing might work for you.
When you want to get a HELOC for an investment property, you usually have to look beyond the big national banks. According to data from several lender surveys, your best options are often:
- Community banks and credit unions are more likely to be flexible with their lending standards, especially for long-term customers with strong relationships. They might offer more personalized underwriting that looks at your whole financial picture instead of just checking boxes on automated systems.
- Online specialized lenders: Some online lenders only work with real estate investors and know how rental properties' cash flow works in a way that other lenders don't. They might be able to move faster than regular banks and offer better terms.
- Mortgage brokers: These experts can shop around for you with several lenders, which can save you time and maybe even help you find better rates than you could on your own.
Because it's hard to find, you'll have to do more research ahead of time. I've seen investors spend weeks calling different lenders, only to find that maybe one or two will even look at their application.
The Current Rate Environment for HELOCs on Investment Properties
HELOC rates have come down since the Federal Reserve began cutting its benchmark rate in September 2025. Bankrate's national survey found average HELOC rates at 8.05% in September 2025; as of September 9, 2026, the same survey put the average at 7.26%. That's still well above where rates sat a few years ago, when the average HELOC rate was below 4%.
The Mortgage Bankers Association's 2025 Home Equity Lending Study, which covers 2024 lending, found that the number of HELOCs and home equity loans originated in 2024 was up 7.2%. Marina Walsh, Vice President of Industry Analysis at MBA, said, "With close to $35 trillion of homeowner equity in residential real estate and many homeowners locked into low-rate first mortgages, HELOCs and home equity loans have become the product of choice for many homeowners."
There's no national survey of investment property HELOC rates, so the honest answer is a range. Lenders price these lines above primary residence HELOCs. In our experience the premium usually runs 0.5 to 1.5 percentage points, and Bankrate's guide notes that at least one lender prices its investment property HELOCs up to 2 percentage points above its primary home line. Starting from Bankrate's 7.26% national average as of September 9, 2026, that puts investment property pricing roughly between 7.76% and 8.76%, and maybe higher depending on your credit history and the features of the property.
These rates are tied to the prime rate, which means they will change when the Federal Reserve changes its policies. The Fed cut rates three times in late 2025; at its July 2026 meeting, the Federal Open Market Committee held the target range for the federal funds rate at 3.50% to 3.75%.
What You Need to Know About Qualification Requirements
A lot of investors assume qualifying comes down to a credit score. Underwriting looks at much more than that. Drawing on Bankrate, Experian, and the published requirements of many lenders, here's what actually gets weighed:
Requirements for Your Credit Score
Your credit score needs to be solid, usually at least 700 to 720, and some lenders want it higher. This is a lot more than the 650–680 range that might qualify you for a primary residence HELOC. The higher requirement shows that lenders think investment properties are riskier.
What this means for you is that if your credit score is close to the line, you might want to work on it for a few months before applying. Even small changes can lead to better rates and terms.
LTV, or Loan-to-Value Ratio
Most lenders limit investment property HELOCs to 75–80% LTV, which means you need to keep at least 20–25% equity in the property. This is how the math works in real life.
A real-life situation with the market as it is now:
Details about the property Amount
Value of the property now: $500,000
Balance on Existing Mortgage: $300,000
Your current equity is $200,000, or 40%.
The highest LTV for a lender is 75%.
Step 1: Figure out the most debt you can have.
$500,000 times 0.75 equals $375,000.
Step 2: Take away the mortgage you already have.
$375,000 - $300,000 = $75,000, which is the most you can get with a HELOC.
Step 3: Figure out the monthly interest-only payment (8.5% during the draw period).
$75,000 times 0.085 divided by 12 equals $531.25 a month.
Step 4: Figure out how much you will have to pay in full after the draw period ends (15 years at 8.5%). $75,000 at 8.5% for 15 years means $739 per month (interest and principal).
This example shows why lenders want a lot of equity: you're keeping $125,000 (25%) of it as a safety net. This is a safer option than primary residence HELOCs, which may let you borrow up to 85–90% of the value of your home.
Ratio of Debt to Income (DTI)
Depending on the lender, your DTI should stay below 40% to 50%. Here's the catch: when lenders figure out your DTI, they will include rental income from the property, but they will usually only count 75–80% of that income to cover possible vacancies and maintenance costs.
Bankrate's guide to investment property HELOCs says that lenders want to see proof of rental income history, which they often require:
• Lease agreements with current tenants
• Proof of two years of rental income
• Proof of long-term leases (not month-to-month agreements)
• Proof that the property is making money or at least not losing money
Money in the bank
A lot of investors are surprised by this requirement. Most lenders want to see that you have enough cash on hand to cover your mortgage, HELOC payment, and property costs for 6 to 12 months, even if the property is empty.
Look at it from the lender's point of view. Can you still make all of your payments if your tenant moves out and it takes three months to find a new one? Lenders need to know that you have that safety net.
Appraisal of Property
Usually, the appraisal process for investment properties is more thorough than for primary residences. Under standard industry lending practices, appraisers will pay close attention to:
• Rental properties in the area that are similar
• The current state and any maintenance that has been put off
• Ability to make money
• The rental property market in your area
The book answer is that appraisals are simple, but in reality, appraisals for investment properties can be more subjective. The appraiser needs to look at more than just the property's value; they also need to look at how well it can make money.
Smart Ways to Use Investment Property HELOCs
An investment property HELOC can be a very useful tool when it makes sense. Here are the times when it usually gives the most value:
Improvements and renovations to property
Remodeling Magazine's Cost vs. Value Report, which tracks how much of a project's cost is recovered at resale, shows that well-chosen updates recover a meaningful share of what they cost. Quality kitchen and bath updates raise a property's value and can also justify higher rental rates.
MBA's 2025 Home Equity Lending Study also found that home improvements made up 46% of HELOC use in 2024. This is down from 56% in 2023 and 65% in 2022, as more borrowers shifted to using HELOCs to pay off other debts: debt consolidation rose to 39% of volume in 2024 from 25% in 2022.
The flexibility of a HELOC is great for this project because you can take out money as you need it during the renovation instead of all at once. You only pay interest on the money you actually borrowed, which makes it a good choice for projects that take a long time to finish.
The good news is that according to IRS rules, the interest on a HELOC used to make capital improvements to your rental property may be tax-deductible as a business expense. Always talk to a tax professional to make sure you understand your situation, especially since tax laws can change.
Adding to your portfolio
Many real estate investors use HELOCs to help them buy more properties. If you can get $75,000 through a HELOC and find a home that costs $300,000, you could use the HELOC to pay the down payment and closing costs and then get a regular mortgage to pay for the rest.
You can grow your portfolio faster with this strategy, which is often called "using leverage to create leverage," than by saving money for each down payment. Of course, the risk is that you're taking on debt on one property to buy another, so you need to be sure you can handle the cash flow from both properties.
Repairs in an emergency and a cash flow buffer
Investment properties have a way of needing costly repairs at the worst possible times. If your rental's HVAC system breaks down in July or the roof starts leaking during a storm, having a HELOC means you can fix it right away without having to look for money.
Many of our clients at AmeriSave keep a HELOC as a safety net, even if they never use it. It can be worth the small amount of money it costs to keep the line of credit open just to know that you can get money when you need it.
The Pros: When It Makes Sense to Get an Investment Property HELOC
The benefits are real, but they only matter if they fit the way you plan to use the money. Here's what an investment property HELOC actually gets you:
You can get money when you need it, not all at once like with a lump-sum loan. You don't have to pay interest on money that is just sitting in your bank account. The Consumer Financial Protection Bureau's HELOC guidelines say that the typical draw period of 10 years gives you plenty of time to use the money wisely.
Only paying interest during the draw period—For the first 5 to 10 years, you usually only have to pay interest on the money you borrowed. For a $50,000 draw at 8.5%, that's about $354 a month, which is a lot easier to handle than payments on the principal and interest.
Lower rates than credit cards or personal loans - Even with the extra cost for investment properties, HELOC rates are still much lower than credit cards (which average 20-24% according to Federal Reserve data) or personal loans (which average 10-15% for most borrowers).
Possible tax benefits: If you use the money to make improvements to your rental property, the interest may be tax-deductible as a business expense. This can lower the cost of borrowing a lot.
Your main home is safe. If you can't make the HELOC payments because of money problems, the lender would take your investment property, not your personal home (as long as you didn't cross-collateralize).
Property value leverage means using the equity you've built up instead of letting it sit there. This can speed up the growth of a portfolio for investors who are focused on growth.
The Cons: What Could Go Wrong
There are some real problems to think about, to be honest:
Much harder to qualify: Bankrate's guide to investment property HELOCs says you'll have to meet stricter requirements across the board, such as a higher credit score, a lower LTV ratio, more cash reserves, and more complete income documentation. Even if they could easily get a HELOC on their primary home, many investors won't be able to qualify.
Higher interest rates: That extra 0.5% to 1.5% adds up over time. For a $75,000 HELOC, an extra 1% in interest costs you about $750 a year.
Variable rate risk: Your rate will change every month or every three months based on changes to the prime rate. The Federal Reserve's target range stood at 3.50% to 3.75% after its July 2026 meeting, and rates can move in either direction from there depending on inflation and the broader economy. At 10.5% or higher, what seems like a good deal could become a burden.
Your rental property is collateral, so there is a risk of foreclosure. The lender can foreclose if you can't make payments, which could happen if the property sits empty longer than you thought it would or if you run into money problems. You lose not only the property but also all the equity you've built up.
Limited lender options: Surveys of the industry show that less than 30% of major lenders offer HELOCs for investment properties. Because there isn't much competition, you have less power to get good terms.
Higher fees: Investment property HELOCs usually have higher closing costs, annual fees, and penalties for paying off the loan early. These can raise your total cost by thousands.
Higher debt service: You're taking on another monthly payment. This makes it harder to get future loans and lowers the amount of cash flow the property brings in.
Other Ways to Get Money That Are Worth Thinking About
Here are some other options if an investment property HELOC doesn't work for you or if you can't find a lender who will give you one:
Cash-Out Refinance on the Property You Own
You replace your current mortgage with a bigger fixed-rate loan and take the difference in cash. Investment property mortgage rates run above primary residence rates, but a fixed cash-out rate is often lower than the variable rate on an investment property HELOC, and the balance starts paying down on a set schedule from day one. Whether that beats a HELOC depends on how much you're pulling out relative to what you already owe and whether the money is already spent, which the FAQ at the end works through.
Pros: One payment each month, a lower fixed rate, and a big lump sum of money.
Cons: It makes your loan term longer, it costs money to close (usually 2–5% of the loan amount), and it is less flexible than a HELOC.
Best for: big one-time costs like buying a new house or making major repairs
HELOC on Your Main Home
A primary residence HELOC usually has better terms than an investment property HELOC, as long as you meet the requirements. Bankrate put the national average HELOC rate at 7.26% as of September 9, 2026; investment property lines typically price 0.5 to 1.5 percentage points above that, or roughly 7.76–8.76%.
Pros: easier to get approved, lower rates, and more lenders to choose from
If you don't pay, your own home could be at risk, and you might want to keep some of the equity for personal needs.
Best for: Investors who want to keep the value of their investment property while still being able to get money
Home Equity Loan for Real Estate Investments
Like a HELOC, but it gives you a lump sum and fixed monthly payments. Bankrate's data as of September 9, 2026 shows an average home equity loan rate of 8.13%. For investment properties, expect the rate to run roughly 0.5 to 1 percentage point higher.
Pros: A fixed rate means that payments stay the same and the repayment schedule is easy to follow.
Disadvantages: Not as flexible as a HELOC, you have to pay interest on the whole amount right away, and it's still hard to find lenders.
Best for: Projects with known costs where you want to be sure you'll get paid
Specialized lenders offer portfolio loans.
Some lenders focus on real estate investors and offer portfolio loans that look at your whole investment portfolio instead of just one property. According to industry data, these loans may be more flexible when it comes to underwriting, but they usually have higher rates (8–10%) and shorter terms.
Loans from private people or hard money
Private lenders give out short-term loans (6 to 24 months) that are usually used for fix-and-flip projects. According to data from the industry, rates are between 10% and 15% and there are big fees up front.
Best for: Buying or fixing up a house quickly and then selling or refinancing it quickly
At AmeriSave, our loan officers help real estate investors look at these options and choose the best financing structure for their investment goals and financial situation.
How to look for and apply for an investment property HELOC
If you think an investment property HELOC is right for you, here's how to go about it:
Step 1: Figure out how much equity you have.
To find the maximum possible HELOC, use this formula: (Property value × maximum LTV percentage) - existing mortgage balance.
Keep in mind that you'll probably need to leave 20–25% of your equity alone.
Step 2: Make sure your credit and finances are ready.
Before you apply:
• Check your credit reports for mistakes
• Figure out your current DTI by adding up all your debts
• Keep records of your rental income, such as tax returns, lease agreements, and rent rolls.
• Check that you have enough cash on hand (6 to 12 months' worth of expenses)
Step 3: Look at more than one lender
Getting preapproval from at least three lenders is a good lending practice. Search for:
• Local community banks that lend money to investors
• Credit unions that you already belong to
• Lenders who work online and focus on investment properties
• Mortgage brokers who can connect you with a number of lenders who are good for investors
Step 4: Get the necessary paperwork
Get these papers ready:
• Tax returns for the last two years (personal and for any LLCs or businesses)
• Current mortgage statements for the property you want to buy
• Proof of rental income (leases, rent rolls, and Schedule E from tax returns)
• Bank statements that show how much cash you have on hand
• Proof that you have homeowners insurance
• Recent pay stubs and W-2s that show how much money you made at work
• An appraisal of the property (the lender will order this)
Step 5: Send in your application and get ready for the appraisal.
The lender will have your investment property appraised. Before the appraisal, make sure the property is in good shape and that any maintenance that has been put off is done. The appraiser will look at recent sales and rentals that are similar to yours in your area.
Step 6: Read the terms and agree to them.
Read the loan terms very carefully, including:
• The interest rate and how often it changes (every month or every three months)
• Length of the draw period
• Terms of the repayment period
• Fees every year
• Costs of closing
• Fees for paying early
The Bottom Line: Is a HELOC on an investment property right for you?
Be honest with yourself about whether this structure fits. Run the same four questions I'd ask any borrower: how much do you need to borrow, what is the money for, how much do you still owe on the property, and what other debt are you carrying?
For an investor with strong credit, real equity, six to twelve months of reserves, and a plan to earn more from the money than it costs to borrow, an investment property HELOC can be the right tool. It works best for people who have already managed more than one property and know what the cash flow looks like in a bad month.
This isn't the right move for everyone. If you can't meet the qualification requirements, the property barely covers its own costs, or a variable rate and the possibility of foreclosure would keep you up at night, one of the alternatives above is probably the better fit.
At AmeriSave, we build the financing around your numbers rather than starting from a product. Whether that ends up being a HELOC, a cash-out refinance, or another equity solution, the option that adds the least to your monthly obligation and has you paying back the least interest over time is usually the one that fits. Our team can walk through that math with you.
Bankrate. (2026). Home Equity Line of Credit (HELOC) Rates.
Bankrate. (2025). Guide to HELOCs on investment properties.
Consumer Financial Protection Bureau. (2025). What is a home equity line of credit (HELOC)? Accessed October 28, 2025.
Consumer Financial Protection Bureau. (2024). What You Should Know About Home Equity Lines of Credit. Accessed October 28, 2025.
Experian. (2025). Can You Get a HELOC on an Investment Property?.
Federal Reserve Bank of St. Louis. (2025). All Sectors; Total Home Equity Lines of Credit; Asset, Level. FRED Economic Data. Accessed October 28, 2025.
Federal Reserve Bank of St. Louis. (2025). Credit Card Interest Rate (TERMCBPER24NS). FRED Economic Data. Accessed October 28, 2025.
Federal Reserve. (2026). Federal Reserve issues FOMC statement.
Mortgage Bankers Association. (2025, July 28). MBA Home Equity Study Shows Increase in Originations, Debt Outstanding in 2024. Accessed October 28, 2025.
Remodeling Magazine (JLC). (2024). Cost vs. Value Report.
The Mortgage Reports. (2025, February 11). Best HELOC Lenders for Investment Properties. Accessed October 28, 2025.
Bankrate. (2026). Home Equity Loan Rates.
Bankrate. (2025). HELOC rates drop to lowest level since March, as Fed cuts rates for the first time in 2025.
Mortgage Bankers Association. (2025). Chart of the Week: HELOC and Home Equity Loan Origination Volume by Known Borrower Usage.
Jon brings extensive experience in loan origination, sales leadership, and operations to AmeriSave, based in Waikiki, HI. Starting as a Loan Originator, he was promoted to Manager after 13 months and to VP eight months later, eventually managing 330 direct reports and establishing AmeriSave's Spanish lending channel. Married with three children, he specializes in transparent, technology-enabled lending that prioritizes client relationships and consumer empowerment.
Frequently Asked Questions
You can get a HELOC on a rental property if you have good credit, but you will need more than just a good credit score to qualify. Most lenders want a credit score of at least 700 to 720 for investment property HELOCs, and some want more. This is a lot higher than the 650 to 680 that is usually needed for a primary residence. Lenders will look at more than just your credit score. They will also look at your debt-to-income ratio (which should be less than 40–50%), your cash reserves (which should be enough to cover 6–12 months of expenses), and the property's income history. After you set up the HELOC, you'll also need to have at least 20–25% equity left in the property. Bankrate's guide to investment property HELOCs notes that even people with great credit may have trouble finding lenders who offer investment property HELOCs. This is because many of the biggest lenders don't offer this product. Community banks, credit unions, and specialized online lenders that work with real estate investors are usually your best bets.
There are a few big differences between investment property HELOCs and primary residence HELOCs. Bankrate and Experian both put the bar higher for investment properties: higher credit scores (700–720 or more vs. 650–680), lower maximum loan-to-value ratios (75–80% vs. 85–90%), and more cash on hand. Lenders see investment properties as riskier, so they also charge more in interest, commonly 0.5 to 1.5 percentage points in our experience. They assume that if you have trouble paying your bills, you'll put your personal home first. The qualification process is more thorough. Lenders want to see detailed proof of rental income, tenant history, and how well the property is doing in terms of cash flow. Also, you'll have fewer lenders to choose from because a lot of big banks don't even offer HELOCs on investment properties. The draw and repayment periods are similar, but the costs and requirements make a big difference in how easy and cheap they are to get.
There are a few things that affect how much you can borrow with a rental property HELOC, but the loan-to-value ratio is the most important one. Most lenders limit investment property HELOCs to 75 to 80% LTV, which means you need to keep at least 20 to 25% equity in the property. To find out how much you can borrow, multiply the current value of your property by the lender's maximum LTV percentage and then subtract your current mortgage balance. You could borrow up to $120,000 if your rental is worth $400,000 and you owe $200,000, and the LTV limit is 80%. But your actual approved amount may be lower because of your credit history, debt-to-income ratio, cash reserves, and the property's rental income history. Actual line sizes vary widely by lender and property, and borrowers with strong credit and higher-value properties generally qualify for larger lines.
Yes, you can use a HELOC from your main home to buy an investment property. In fact, this is a very common way for real estate investors to do it. As the Consumer Financial Protection Bureau's HELOC guidance explains, a HELOC is a revolving line you can draw on as needed, and if your credit line is big enough, investors routinely use primary residence HELOC funds for the down payment, closing costs, or even the whole purchase of a rental. This method has a few benefits: it's easier to qualify for (primary residence HELOCs have less strict requirements), the interest rates are lower (Bankrate's national average was 7.26% as of September 9, 2026, versus roughly 7.76% to 8.76% for investment property lines), and there are more lenders to choose from. The biggest problem is that you are putting your main home at risk as collateral. If your investment property doesn't make as much money as you thought it would or you run into money problems, failing to pay back the HELOC could mean losing your own home. You also need to make sure that your debt-to-income ratio can handle both the HELOC payments and the new mortgage on the investment property you're buying.
Yes, having a HELOC on an investment property can save you a lot of money on taxes, but the details are very important. The IRS says that interest paid on a HELOC used to make capital improvements to your rental property is usually tax-deductible as a business expense. Adding square footage, replacing the roof, installing a new HVAC system, or making major changes like remodeling the kitchen are all examples of capital improvements. Basically, anything that makes the property more valuable or extends its useful life. This deduction can significantly lower the cost of borrowing for you. But you can only deduct the interest if you use the money for business purposes related to the rental property. You can't deduct the interest on a HELOC loan if you use the money for personal expenses. It's also important to remember that tax laws can change, and there may be limits on how much you can deduct depending on your situation. Talk to a qualified tax professional to find out how the interest deduction applies to your situation and to make sure you're keeping track of how you're using the money and claiming deductions correctly.
Your HELOC rate will change when the prime rate changes. The prime rate is very similar to the Federal Reserve's federal funds rate. Bankrate's HELOC guidance explains that when the Fed raises or lowers its benchmark rate, the prime rate usually moves by the same amount, and your HELOC rate follows soon after. Most HELOCs change every month or every three months, so you'll notice a difference within a few weeks to a couple of months after the Fed makes a decision. You can see it in the numbers: Bankrate's national survey put average HELOC rates at 8.05% in September 2025, right after the Fed's first cut of the cycle, and at 7.26% as of September 9, 2026. The prime rate plus a margin (usually between 0.5% and 2% depending on your credit history and the terms of your loan) makes up your specific rate. Your rate would go down by the same amount if the Fed cut rates by another 25 basis points. On the other hand, if inflation rises and the Fed raises rates, your HELOC payment will go up. Because the interest rate can change, your monthly payments may also change over time. This is why it's important to make sure you can still make your payments even if rates go up by a few percentage points.
It usually takes three to six weeks to get an investment property HELOC approved, but this can vary a lot depending on the lender and your situation. Industry data from several lenders shows that the process usually takes longer than primary residence HELOCs because there are more paperwork and underwriting requirements. You should plan to spend the first few days getting the paperwork you need, like two years' worth of tax returns, proof of rental income, lease agreements, bank statements, and proof of insurance. After that, the lender will order an appraisal, which usually takes one to two weeks to schedule and finish. Lenders look closely at the property's income potential, your cash reserves, and your overall investment portfolio when they underwrite an investment property. This is more detailed than when they underwrite a primary residence. If you have all the paperwork ready ahead of time, some specialized online lenders and portfolio loan providers may be able to finish the process in two to three weeks. Get all the paperwork you need ready before you apply, respond quickly to any lender requests for more information, and make sure your investment property is in good shape before the appraisal to speed up the process.
If your investment property is empty and not making money from rent, you still have to make HELOC payments. This is one of the biggest risks of using a HELOC to buy an investment property. This is exactly why lenders require 6 to 12 months of cash reserves: they want to be sure you can keep making payments even when you aren't renting. During the draw period, you usually have to make at least interest-only payments on the amount you borrowed. Once you start paying back the loan, you'll have to pay both the principal and the interest, even if the property doesn't have any tenants. If you can't make the payments, the lender can start the process of foreclosing on your investment property, and you'll lose both the property and the equity you've built up. This risk makes it even more important to keep enough cash on hand, carefully screen tenants to keep turnover low, and honestly figure out if you can afford the HELOC payments from your other income sources if rental income stops. Many seasoned investors keep larger amounts of cash on hand to cover long periods of vacancy, damage to property, or unexpected major repairs.
Some lenders let you change all or part of your HELOC balance to a fixed rate, but not all lenders do this, and there are usually specific terms and conditions that come with it. Bankrate's coverage of HELOC products shows that different lenders offer very different fixed-rate conversion options. You might be able to lock in a fixed rate on a part of your balance when it's available. However, the fixed rate is usually higher than your current variable rate because you're paying for stability. There may be minimum balance requirements for conversion, limits on how many times you can convert balances, and possibly conversion fees. Some lenders only let you use this feature during the draw period, not when you pay it back. If you want your rates to stay the same, you should ask potential lenders about fixed-rate conversion options before you choose a HELOC. You could also think about getting a home equity loan instead of a HELOC. Home equity loans have fixed rates from the start, but you can't draw money from them whenever you need it. You have to choose between flexibility and rate certainty, and the right choice depends on your needs and how much risk you can handle.
Start with whether the money is already spent. If contractors are lined up, work is under way, or the bills are already due, you're going to be paying that balance back on a schedule no matter what, and a cash-out refinance usually wins: it carries a fixed rate that is typically lower than a variable investment property HELOC rate, and the balance starts paying down from day one. If the money isn't spent yet, say you have an idea for the property but nothing finite, or you want a cushion for repairs, a HELOC usually wins, because you only pay interest on what you actually draw. The second variable is size. If you owe $300,000 on the property and only need $30,000, reworking the whole first mortgage to reach that equity rarely pays off, so the HELOC makes sense even if the money is spent. The larger the draw relative to your balance, the more the math tips toward the cash-out. Keep in mind that a cash-out refinance also resets your term to 15 or 30 years and costs 2% to 5% of the loan amount in closing costs, while a HELOC leaves your existing mortgage untouched. What you're trying to limit is payment shock: put the two options side by side, look at what each does to your monthly obligation and to the total interest you'll pay before the balance is gone, and let those two numbers make the call. At AmeriSave, we work through that math with investors using their actual mortgage terms and goals.