Using a Home Equity Loan or HELOC on an Investment or Rental Property

You can use your home equity for many things—including buying an investment or rental property.

It’s simple: take out a home equity loan or home equity line of credit (HELOC) against your home or investment property and use those funds toward your new property. It sounds crazy to use one home to buy another, but it’s a common practice. It can often save you money, too.

Are you considering using a HELOC or home equity loan on an investment property or rental? This guide can help.

In this guide:

• Can you use a home equity loan or HELOC for an investment property?
• Can you take out a home equity loan or HELOC from an investment property?
• Should I take out a home equity loan for an investment or rental property?
• Where can I find a lender that offers home equity loans or HELOCs?
• How to choose between a home equity loan and a HELOC
• Are there tax benefits for using a home equity loan or HELOC?
• Are there alternative sources of financing that should be considered?

Can you use a home equity loan or HELOC for an investment property?

If you own a home, it may be possible to take out a home equity loan or HELOC against it and use those proceeds to purchase a new property—or even cover the expenses of an existing one.

Doing so does have some drawbacks, though, and you will want to carefully consider these—as well as the lender’s requirements—before moving forward.

Need help? Here’s what you need to know about using your home’s equity to either purchase an investment property or cover the costs of one you already own.

Using a home equity loan or HELOC to purchase an investment property

If you’ve built up a lot of equity in your home, you might consider using it to purchase an investment or rental property that earns you income.

The process looks like this:

• You apply for a home equity loan or HELOC with a reputable lender.
• You receive the funds or line of credit after closing.
• You use those funds to cover the down payment on the investment property of your choice. In some cases, it may even cover the full purchase price (if it’s a fixer-upper, for example).

As with anything, there are both pros and cons to this financing strategy, so proceed with caution.

On the upside, it allows you to cover a large portion of your new property’s costs, and you may get better interest rates than you would on other products, too. Rates on mortgage products like HELOCs and home equity loans tend to be lower than personal loans or other financing options.

The major drawback, though, is that it puts your property at risk of foreclosure. If you can’t make the payments on the HELOC or home equity loan, the bank could seize your house.

Additionally, the loan will require closing costs and the closing process may take longer than an unsecured loan would. Personal loans, for example, often close in just a few days.

Using a home equity loan or HELOC to cover expenses from an investment property

You can also use your home equity to cover the costs of an existing rental or investment property you own. This might include repairs, maintenance expenses, furniture, marketing costs, or fees for a real estate agent.

You can take out a HELOC or home equity loan against one property and use the funds for expenses. Unless you know the exact amount of cash you need, a HELOC might be a better option since you can withdraw money over an extended period of time. Home equity loans provide a lump-sum payment.

Again, there are pros and cons to consider here. The big benefit is that you have access to cash that can make your rental or investment property more successful (and more profitable), and you’ll probably get a lower interest rate than you would on a credit card or other type of loan.

The downside is that you’re using other property as collateral, which can be dangerous—especially if you’re not sure the new property will produce enough income to cover the loan payment. You may pay closing costs and have to wait for the  funds. Paying with a credit card, for example, is faster. 

Can you take out a home equity loan or HELOC from an investment property?

If you already have an investment or rental property, you may also be able to take out a HELOC or home equity loan against it and use those funds to purchase another investment, make repairs on the property, or cover other business expenses you might be facing.

With these loans, you will typically need to meet stricter requirements than you would on your primary residence, as it poses more risk for the lender.

The advantage here is that you can use the funds for anything. It can be a good way to leverage your investments and make them truly work for you.

On the downside, you’ll need to meet stricter standards to qualify, there are closing costs, and you put your investment property at risk of foreclosure. It might also be harder to find a lender since fewer companies offer this kind of financing.

Is it more difficult to take out a home equity loan for an investment property than it is on a primary residence?

Because of the added risk, it is usually harder to take out a home equity loan or HELOC on an investment property than it is on a primary home. You might need to have more in cash reserves or provide proof of your property’s rental income to qualify. You also may need a higher credit score.

	Home equity product on primary residence	Home equity product on investment property
Min. credit score	620	720
Max. loan-to-value	90%	80%
Max. debt-to-income	45%	40% to 50%
Cash reserves	3 to 12 months of payments	6 to 15 months of payments

Every lender has its own requirements, though, so you’ll want to shop around if you’re considering this type of home equity product. Get quotes from at least a few companies and see which ones offer the best terms considering your credit score and other qualifying factors.

Should I take out a home equity loan for an investment or rental property?

Using a home equity loan for an investment property isn’t right or wrong. Instead, you’ll need to consider all the pros and cons, how those align with your goals and budget, and your overall tolerance for risk.

You should also consider the process for these loans. While their rates are often more attractive than other financing options, the process is often more complex and longer, and it may be more difficult to find a lender than it would be for other types of loans.

To be sure you’re making the right choice, you should also consider alternative forms of financing.

Where can I find a lender that offers home equity loans or HELOCs on an investment property?

There are several lenders that offer primary residence home equity loans and HELOCs, which you can use to purchase an investment or rental properties or cover expenses on them.

Some may also allow you to take out these loans on existing investment properties, but not all. If this is the type of financing you’re seeking, make sure to double-check with the lender you’re considering before moving forward.

Here are a few home equity loan and HELOC lenders you might want to consider:

Figure

If you’re considering a HELOC, Figure is one option to look at. The online lender offers a HELOC product, as well as other mortgages including crypto loans.

Here’s a look at Figure’s HELOC requirements and specs:

	Figure HELOC
Rates (APR)	4.24% to 11.16%
Loan amount	$15,000 to $400,000
Credit score	640 or higher
Maximum LTV	85%
Fees	An origination fee of up to 4.99%
Repayment terms	5, 10, 15, or 30 years
Draw terms	5 years
Discounts	0.25% rate discount for autopay

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Spring EQ

If a home equity loan is something you’re eyeing, you might consider Spring EQ. You can access up to 95% of your home’s equity and check your eligibility for both a home equity loan and HELOC with one online application.

Here’s a look at Spring EQ’s home equity loan requirements and specs:

	Spring EQ home equity loan
Rates (APR)	Starting at 9.50%
Loan amount	$25,000 to $500,000
Credit score	680
Maximum LTV	95%
Fees	Not all disclosed, but origination fee of $1,395
Repayment terms	5 to 30 years

How to choose between a home equity loan and a HELOC

Both home equity loans and HELOCs can be smart ways to turn your equity into cash, but they’re not one and the same.

Home equity loans, which come with a single, lump-sum payment after closing, are typically best if you know how much cash you need upfront. This might make them good for covering a down payment, for instance.

HELOCs, on the other hand, give you a line of credit you can pull from for many years. These might be best if you’re not sure how much you need or want access to cash for an extended period, such as for covering recurring maintenance or repairs on your rental.

Another key difference is in their interest rates. Home equity loans typically come with fixed interest rates, meaning your rate and payment remain consistent for the entire loan term. HELOCs usually have variable rates, which means they can increase over time.

In both cases, your home is used as collateral, so if you fail to make your payments, the lender could foreclose on the property.

Are there tax benefits for using a home equity loan or HELOC on an investment property?

In some cases, you may be able to deduct the interest you pay on a HELOC or home equity loan, though it depends on how you use the funds.

If you use the money as a down payment on an investment property, you won’t be able to write off your interest.

If you use the funds to “substantially improve” the property you took the loan out against, then your interest will be tax-deductible. However, you can’t deduct the interest if the improvements are made on your investment property unless that is the property you’re borrowing against.

Are there alternative sources of financing that should be considered?

Home equity loans and HELOCs aren’t your only options if you want to purchase a new property or cover the costs of repairs and other expenses.

You might also consider a:

• Cash-out refinance: This replaces your existing mortgage loan with a larger one, giving you the difference back in cash. You can then use the funds for any purpose.
• Reverse mortgage: These are mortgages for seniors. They allow you to turn your equity into a one-time payment, a line of credit, or regular monthly payments over time.
• Personal loan: These are unsecured loans you don’t need any sort of collateral for. Because of this, they typically have higher rates than other loan options.
• Credit card: Credit cards can help you cover expenses, but you won’t be able to use one as a down payment on a property. Lenders typically require you to wire funds or pay by cashier’s check for a down payment.

If you need cash, carefully consider each option, keeping in mind your use for the funds and the risk they’d present to your home or finances.

And if you do opt for a home equity loan or HELOC—especially on an existing investment property—make sure you shop around for your lender. This will ensure you not only find a loan you qualify for but that you find one that aligns with your budget and goals, too.