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The median price of a single-family home in the U.S. in February 2022 was $363,800, a 15.5% jump from February 2021, according to the National Association of Realtors. This increase in home prices across the country, spurred by low supply and high demand in the housing market, means many homeowners have gained substantial amounts of equity they can now borrow against for quick cash through a home equity line of credit (HELOC).
If you own an investment property and want to tap into funds for a home improvement project, to consolidate debt, or to purchase another property, you may be considering getting a HELOC on your investment property instead of putting your own house up as collateral.
While HELOCs on investment properties are available, they tend to be more expensive and are harder to get than if you were getting one on your primary residence. Before you decide whether getting a HELOC on your investment property is the right financial move for you, you’ll want to know the requirements to get one, the pros and cons, and how it stacks up against other financing options.
Can You Get a HELOC on an Investment or Rental Property?
While it is possible to get a HELOC on an investment or rental property, it’s more difficult to find and get approved for one. That’s because lenders usually see them as bearing higher risks than if you were getting one on your primary residence. There’s an assumption that there’s less incentive for you to stay on top of your payments because you don’t live in that home.
“With an owner-occupied property, the bank is assuming [that since] you live there, you’re going to make sure you pay for it so you don’t lose the house,” says Monick Halm, an investment property expert and founder of Real Estate Investor Goddesses. “They don’t feel that with a non-owner occupied [property] that there’s the same incentive.”
Not all lenders offer HELOCs for investment properties, says Mike Carpenter, a mortgage originator based in Kirkland, WA, and founder of Mike the Money Man. Even if your financial profile would qualify you for a HELOC on your investment property, you may still find your options limited simply because fewer lenders offer this type of product.
Requirements to Get a HELOC on an Investment property
The requirements to get a HELOC of …….