By A home equity line of credit (HELOC) can provide crucial funding in the event you want to make home renovations or make a big-ticket purchase and don’t have the cash on hand. Taking out this line of credit is often reserved for a primary residence, but what if you had similar needs for an investment property? Could you get a HELOC for other properties in your real estate portfolio?
The short answer is yes, you can get a HELOC on an investment property. Just be aware that it may be more difficult to secure a HELOC in that scenario than it would be for your primary residence. Lenders are more cautious with investment property-related HELOCs because they feel there’s a greater chance the borrower could default on the loan.
Just because it can be more challenging to get a HELOC for an investment property doesn’t mean it’s not worth pursuing. Keep reading to learn more about how HELOCs work, the requirements to get one for an investment property, where to get a HELOC, and more.
What Is a HELOC?
A HELOC is a line of credit in which your home serves as collateral. The revolving credit line can be used for large purchases and home renovations or to consolidate high-interest-rate debt. You borrow against the available equity in your home or, in this case, your investment property with a HELOC. When you repay your outstanding HELOC balance, your available credit increases, the same way a credit card works.
Home equity lines of credit are broken up into two phases. The first is the draw period. This 10-year period is when you can borrow from the HELOC and pay interest on what you borrow. The repayment period follows. At this point, you can no longer borrow from the HELOC, and you start to pay the loan’s principal and interest. You typically have up to 20 years to repay the rest of the balance.
One of the biggest benefits of a HELOC is that you only pay interest on the money you withdraw rather than the entire line of credit. This differs from a home equity loan, where you’d have to pay interest on the total amount you borrowed, whether you used it all or not.
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Can You Get a HELOC on an Investment Property?
HELOCs aren’t limited to primary residences; you can also get them for an investment property. Qualifying for an investment property HELOC is often harder than it is for a primary residence, however. Plus, fewer lenders offer them. You’ll need to have a sufficient amount of equity in the investment property and meet a number of requirements to get a HELOC.
HELOC Requirements: Investment Properties vs. Primary Residences
Although a HELOC for an investment property is more difficult to secure than one for a primary residence, the line of credit functions similarly for both property types. Both have the initial draw period followed by the repayment period.
Lender comfort is one of the main reasons it’s harder to get a HELOC for an investment property than a primary residence. In the lender’s mind, borrowers will prioritize repaying a loan when their own home is at stake. Lenders aren’t as certain that a borrower will have the same motivation to repay a loan where an investment property serves as collateral. That’s why investment property HELOC requirements can be so tough.
The requirements include:
- Strong credit score—at least 720
- At least six months of cash reserves
- At least 20% equity in your investment property once the HELOC’s full value has been drawn
- Debt-to-income ratio of no more than 50%
- Proof of long-term tenants with good income
- Loan-to-value ratio that doesn’t exceed 80%
Can You Use a HELOC for a Down Payment on an Investment Property?
A HELOC can be used to purchase a number of things, including real estate. If you want to buy an investment property but don’t have the cash on hand, you could use funds from a HELOC for a down payment. How big a credit line you’ll be eligible for will depend on how much equity you have in your home.
Who Offers HELOCs on Investment Properties?
When it comes to securing a HELOC on an investment property, you can find funding from the same places you’d go to for a mortgage. This includes large, national banks, but they tend to have stricter eligibility requirements. Smaller community banks, however, may provide more approval flexibility—especially if you have an established relationship. Credit unions can also offer competitive rates and flexible loan terms for their members. You could also look at an online lender, which tends to have a faster approval process.
In the event you need help finding a lender who offers HELOCs for investment properties, a mortgage broker can assist with your search.
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Is a HELOC Tax-Deductible for an Investment Property?
Potential tax deductions are another benefit of getting a HELOC for an investment property. What you use the HELOC funds for will determine if you can leverage those tax benefits, however. If you use the money to renovate your investment property (remodel the kitchen or repair the bathrooms, for example), you could deduct the HELOC interest payments. Additionally, the HELOC has to be secured with the same investment property you plan to renovate (as of 2025).
Be sure to keep good records of how much money you borrowed and where it was spent in case you’re ever audited.
Can You Pay Off a HELOC Early?
HELOCs can be paid off early, and in many cases, it can be beneficial to do so. It’s important to talk with your lender about it first, however. You want to make sure that you won’t be subject to any prepayment penalties. Such penalties could occur if you were to pay off your loan during the first 3-5 years of the repayment period; a lot of prepayment penalties are approximately 2% of the loan balance. The actual figure depends on the lender. If you anticipate repaying your HELOC early, review your loan terms carefully and speak to your potential lender about their prepayment rules before entering the agreement.
What Are the Pros and Cons of Getting a HELOC on an Investment Property?
A HELOC for an investment property can be beneficial. It provides a revolving line of credit that can be used for renovations, major purchases, or even to acquire the property itself. Plus, borrowers only pay interest on the money they use vs. the entire credit line.
There’s a lot to like about a HELOC, but like with any type of loan, there are advantages and disadvantages to getting one. Here’s a closer look at the pros and cons:
Pros of Getting a HELOC on an Investment Property
- Potential tax benefits: You could potentially write off interest paid on a HELOC if the money is used to improve the investment property (repairs, remodeling, etc.).
- Time to use the funds: HELOC draw periods typically last 10 years, so you don’t have to spend the money right away. You also only have to pay back interest (not the principal) during the draw period.
- Additional cash on hand: HELOCs can act as an emergency fund if you need cash in a pinch or if you come across an investment opportunity.
Cons of Getting a HELOC on an Investment Property
- Risk of foreclosure: When you get a HELOC on an investment property, that property is collateral to guarantee you’ll repay the loan. If you default on the loan, you could lose the property.
- Extra fees: Lenders deem investment property-linked HELOCs risky, so you could be subject to a variety of fees. These include transaction fees (charged when you make a withdrawal), annual fees, and inactivity fees (if you don’t use the HELOC for a certain period of time).
- Variable interest rates: HELOC interest rates could change at any time, which could cause your monthly payments to increase and impact your budget.
When Is It a Good Idea to Use a HELOC on an Investment Property?
Given the noted downsides to a HELOC on an investment property, it’s crucial to ensure that getting one is to your benefit. This type of loan is ideal if you plan to use the funds on the property itself. This includes renovating or expanding the property so it’s a more attractive rental to potential tenants and to increase its value in case you want to sell it in the future. Plus, using the HELOC for property-related purposes makes the interest on the loan tax-deductible.
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What Are Alternatives to Using a HELOC on an Investment Property?
HELOCs can be a great way to acquire, renovate, or expand an investment property, but it’s not your only option. Here are a few other ways to get additional funds for your investment property:
- Primary residence HELOC: It can be difficult to secure a HELOC for an investment property because lenders consider it a risk. If you run into this scenario, consider getting a HELOC on your home. Do so with caution—your house would be at risk if you’re unable to repay, and you won’t benefit from the potential tax deductions since the HELOC isn’t connected to the property you’re spending it on.
- Loans: You could take out an unsecured personal loan to pay for an investment property. The lump sum could provide the capital you need, but you might pay higher interest rates depending on your credit. Meanwhile, a small business loan could be available to you if you created a company to own your investment property. Again, interest rates could be higher than they’d be with a HELOC, however.
- Cash-out refinance: If you have enough equity (typically at least 20%), you could refinance your investment property loan to a higher amount and get the difference in cash. You’ll receive the cash in a lump-sum payment from your new lender, and it can be used for any purpose.
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