Can You Use a HELOC to Buy an Investment Property?

Written by Banks Editorial Team
2 min. read
Written by Banks Editorial Team
2 min. read

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You’re a real estate investor looking to add another rental property or fixer-upper to your portfolio? Can you use a home equity line of credit (HELOC) to make the purchase? Buying an investment property with a HELOC is possible, and you won’t have to deplete your reserves. Furthermore, you can build up equity in the property that can be used towards future purchases. 

But first, you should understand the benefits and drawbacks of this approach to determine if it’s the best option for you. 

What Can You Use the Funds of HELOC to Buy an Investment Property?

It’s not uncommon for investors to use HELOC funds to make a down payment towards a new property, add a portfolio to their property without taking on an extra mortgage payment or cover the costs associated with a new loan. 

Pay for a Down Payment

Some lenders require hefty down payments – up to 20 percent – on investment properties. Luckily, you’re not restricted to how you can use the funds, which means you can cover the down payment cost. 

Purchase the Whole Property with No Mortgage

You can buy the property outright and eliminate the need for a monthly mortgage payment by pulling funds from a HELOC loan. Doing so allows you to save several hundred or even thousands of dollars that you’d accrue with a home loan. 

Cover New Loan Costs 

Closing costs are another significant expense you’ll incur when buying an investment property – typically between two and five percent of the total loan amount. Luckily, a HELOC can help offset these costs or cover the entire balance so the transaction can close without a hitch. 

Pros of Using a HELOC to Buy Investment Property

Using a HELOC to purchase an investment property could be a smart financial move for several reasons.

  • You won’t have to deplete your cash reserves. 
  • It could be easier to get approved compared to a traditional mortgage loan.
  • You don’t have to utilize the entire HELOC on the purchase. 
  • You’ll only pay interest on the amount you borrow.
  • The interest rates are generally competitive. 

Cons of Using a HELOC to Buy Investment Property

Unfortunately, there are also drawbacks you should consider before using a HELOC to buy an investment property. 

  • Since a HELOC acts as a second mortgage, You could lose the home used as security if you default on the HELOC payments.
  • The interest is variable, so your monthly payment will fluctuate over time.
  • You may not qualify for a large enough HELOC to meet your needs if you have minimal equity or a lower credit score. 

What Do You Need to Qualify for a HELOC to Buy an Investment Property?

It depends on the lender, but you’ll generally need to meet these criteria to qualify: 

  • A good or excellent credit score (740 or higher is recommended)
  • An acceptable debt-to-income ratio (40 to 50 percent is ideal)
  • A substantial amount of equity in the home you’re using to pull equity from

Where Can You Get a HELOC to Buy an Investment Property?

With so many HELOC options to choose from, how do you know which is best? For starters, you want a reputable lender, whether it’s a traditional bank, a credit union or an online lender, with a proven track record of success.

Spring EQ is an option that should be at the top of your list. It boasts an A+ rating from the Better Business Bureau (BBB) and holds the top spot in customer satisfaction from Lending Tree. 

Its HELOC product lets you tap into up to $500,000 of your home’s equity without needing to refinance. Even better, the time from approval to funding is rapid. In addition, you’ll enjoy an extended draw period and interest-only payments for up to 10 years. 

If a HELOC doesn’t best suit your needs, Spring EQ also features flexible purchase, refinance, and home equity loan products to help meet home loan needs. 

Complete the online form to learn more about Spring EQ’s HELOC or view other loan options that may be available to you.

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