Can you get a HELOC on an investment property?

Yes, you may be able to get a home equity line of credit (HELOC) on an investment property. It likely won't be as simple as it would be for a primary residence, however. Many lenders restrict HELOCs to owner-occupied properties, so your options will probably be limited.

An investment property is a home you own but don’t live in as your primary residence, such as a rental property. A primary residence is the home where you live most of the time. 

While possible, a HELOC on an investment property often comes with stricter requirements, different loan terms, or lower borrowing limits than you'd get for your primary residence. Learn why investment property HELOCs are different and how to get one.

Why investment-property HELOCs can be harder to qualify for

Lenders are often stricter with HELOC requirements on investment properties because these loans are considered to carry more risk than HELOCs on primary residences. That's because rental income could fluctuate, vacancies can affect cash flow, and the property might not get the same upkeep as one you're living in. 

To decide if you qualify for a HELOC, a lender typically reviews several factors, including:

• The amount of equity you have in the property

• Your credit history and credit score

• Your existing debts and debt-to-income (DTI) ratio

• Your income and cash flow, including rental income

Lenders set their own limits for each factor, so ask your lender for more details.

Lower max loan-to-value (LTV/CLTV) is common

LTV and CLTV are ratios lenders use to measure how much equity you have in a property:

• Loan-to-value (LTV) compares your mortgage balance to the property’s market value. 

• Combined loan-to-value (CLTV) includes all loans secured by the property, such as a primary mortgage and a HELOC, compared with the property’s market value.

Investment-property HELOCs often have lower maximum LTV and CLTV limits than primary-residence HELOCs. This means you typically need more equity to qualify than you would for a primary-residence HELOC.

Credit, debt-to-income ratio (DTI), and reserves may matter more

Any time you apply for a mortgage, HELOC, or other type of loan, a lender will want to measure risk. To do so, they'll review your credit, your DTI ratio, and your savings.

To get a HELOC on an investment property, you might need stronger credit, a wider gap between your monthly income and debt payments, and substantially more in savings. These factors could help show lenders that you’re prepared to manage payments, even if your rental income changes or the property has unexpected expenses.

Rates, fees, and terms may differ

A HELOC on an investment property might have different rates, fees, and terms than a HELOC on a primary residence. Lenders typically consider factors such as your credit profile, income, debts, and property equity when setting loan terms.

HELOCs usually have two phases: a draw period and a repayment period. During the draw period, which often lasts five to 10 years, you can borrow, repay, and borrow again up to your credit limit. Some lenders allow interest-only payments during this phase. During the repayment period, you repay the principal plus interest, which could increase your monthly payment.

How rental income could be reviewed

Your lender could ask for information about the rental income from your investment property. You might need to share copies of lease agreements, tax returns, and a rent roll, which is a detailed breakdown of how much rental income the property brings in and who lives there.

Lenders don’t always ask for this information, but it’s smart to have updated records on hand in case yours does. If a lender requests information about your rental income, they might use it to calculate your DTI. That could work in your favor if added rental income reduces your debt-to-income ratio, but lenders could use conservative calculations to do the math.

Where to find a HELOC for an investment property

You might be able to find an investment-property HELOC through local banks, regional banks, credit unions, or lenders that specialize in real estate investment borrowing. Your current bank may be your first stop, but be prepared to talk to more than one lender before you find the right one to work with. 

When speaking with lenders, ask questions such as:

• Do you offer HELOCs in my state?

• Do you require properties to be owner-occupied for a HELOC?

• What is the maximum CLTV allowed, and how is it calculated?

• What types of investment properties do you finance? That might be single-family homes, condos, or multi-unit properties.

• What documentation do you require to verify rental income?

• How long is the draw period, and when does repayment begin?

• Is the interest rate fixed or variable?

• Are there fees, annual costs, or early closure fees?

• Are there restrictions on how the funds can be used?

How to apply for a HELOC on an investment property

The process to apply for a HELOC is fairly straightforward. You'll need to estimate your equity, gather your documentation, and submit your paperwork. Here’s what to expect.

1. Estimate equity. To find your equity, subtract your current mortgage balance from your investment property's current market value. You can use online estimates as a starting point, but your lender will likely require a professional appraisal or digital valuation.

2. Gather your documents. It can save time to organize your documents before the application process. We’ve included a document checklist to follow below. 

3. Shop offers. If you haven't chosen a lender yet, shop around. Compare rates and terms from at least three lenders to find the best deal.

4. Apply. Once you choose a lender, you'll submit an application and copies of all the requested documents. The next step is usually a valuation, which the lender will schedule. Once that's done, the lender finishes underwriting, and you move to closing.

5. Close. If you're approved for an investment-property HELOC, you'll need to sign the closing documents and pay closing costs. Your lender will also tell you how you'll be able to access your HELOC (e.g., bank account, credit card, or debit card).

6. Plan repayment. Your loan agreement should outline the terms of your draw period and repayment period. You can sit down with your budget to estimate where monthly HELOC payments fit in.

Investment-property HELOC document checklist:

• Recent pay stubs

• Bank statements

• Tax returns

• Mortgage statements

• Proof of property insurance

• Copies of leases

• Rent roll

If you're self-employed, you may also need an updated cash flow statement and profit-and-loss statement to share with the lender.

HELOC vs. home equity loan vs. cash-out refinance for a rental property

As you compare all three, think about what you value most. Start with whether you want to keep your existing mortgage intact—in that case, a HELOC or home equity loan makes more sense than a cash-out refinance. 

Between those two, if you want a fixed payment, focus on a home equity loan or a fixed-rate HELOC. If you need the flexibility to borrow, repay, and borrow again, a HELOC is built for that.

Unsure which one you should choose? Learn more with our helpful guides:

• How does a HELOC work?

• HELOCs vs. home equity loans

• Home equity loans vs. cash-out refinances