Hitch - A Comprehensive Guide to Getting a HELOC on an Investment Property

A Comprehensive Guide to Getting a HELOC on an Investment Property

Apr 28, 2023

A Home Equity Line of Credit (HELOC) is a type of loan that allows homeowners to borrow money against the equity in their property. HELOCs are popular because they offer a flexible way to access cash when you need it. For those who own an investment property, obtaining a HELOC can be an attractive option for accessing cash to fund repairs or renovations, pay off high-interest debt, or invest in new opportunities.

However, getting a HELOC on an investment property can be more challenging than obtaining one on a primary residence. Investment properties are considered riskier for lenders because they are not owner-occupied and therefore have a higher risk of default. In this blog post, we will discuss the steps you can take to increase your chances of getting approved for a HELOC on an investment property.

1. Build up Equity

The first step to getting a HELOC on an investment property is to build up equity in the property. Equity is the difference between the current market value of the property and the outstanding mortgage balance. Lenders typically require a minimum of 20% equity in the property to consider approving a HELOC. If you don't have enough equity in the property, you may need to wait until you have built up more equity before applying for a HELOC.

2. Check your Credit Score

Before applying for a HELOC, check your credit score and make sure it is in good shape. A good credit score will not only increase your chances of getting approved, but it will also help you get a lower interest rate. Most lenders require a credit score of at least 680 to qualify for a HELOC on an investment property.

3. Shop Around for Lenders

Different lenders have different requirements and criteria for HELOCs on investment properties. Shop around for lenders and compare their terms and conditions. Make sure you read the fine print and understand all the fees and costs associated with the loan. It's important to note that HELOCs on investment properties typically come with higher interest rates and fees than HELOCs on primary residences.

4. Prepare your Documentation

To apply for a HELOC on an investment property, you will need to provide documentation such as income tax returns, bank statements, and property appraisal reports. Make sure you have all the necessary documentation ready before applying for the loan. You may also need to provide documentation of rental income, such as leases and rent rolls, to show the lender that the property generates income.

5. Demonstrate Rental Income

Lenders will want to see that the investment property generates rental income that can cover the monthly payments on the HELOC. Make sure you have documentation of the rental income and expenses associated with the property. You may also need to provide a cash flow analysis that shows how the rental income covers the mortgage payment and any other expenses associated with the property.

6. Be Prepared for a Lower Loan-to-Value Ratio

Lenders typically offer lower loan-to-value (LTV) ratios for HELOCs on investment properties than for primary residences. A lower LTV ratio means that you will be able to borrow a smaller percentage of the property's equity. Most lenders will offer an LTV ratio of up to 75% for a HELOC on an investment property, but some may only offer an LTV ratio of 60% or lower. Be prepared to put down a larger down payment or accept a lower credit limit if the lender offers a lower LTV ratio.

FAQs on How to get a HELOC on an Investment Property

If you're a real estate investor looking to access the equity in your investment property, a home equity line of credit (HELOC) can be an attractive option. However, the process of obtaining a HELOC on an investment property can be more complicated than for a primary residence. To help you navigate the process, we've compiled some frequently asked questions and answers on how to get a HELOC on an investment property. Read on to learn more about the requirements, shopping around for lenders, and some possible uses for a HELOC on an investment property.

1. What is a HELOC and how does it work?

A HELOC is a type of loan that allows homeowners to borrow money against the equity in their property. It works like a credit card, where you can borrow money as needed, up to a set credit limit.

2. Can I get a HELOC on an investment property?

Yes, you can get a HELOC on an investment property. However, it can be more challenging than obtaining one on a primary residence due to the higher risk associated with investment properties.

3. What are the requirements for getting a HELOC on an investment property?

Lenders typically require a minimum of 20% equity in the property, a good credit score of at least 680, and documentation of rental income and expenses associated with the property. Be prepared for a lower loan-to-value (LTV) ratio than for a primary residence.

4. How do I shop around for lenders?

Research different lenders and compare their terms and conditions, including interest rates, fees, and loan-to-value ratios. It's important to read the fine print and understand all the costs associated with the loan.

5. What are some uses for a HELOC on an investment property?

A HELOC on an investment property can be used to fund repairs or renovations, pay off high-interest debt, invest in new opportunities, or cover unexpected expenses associated with the property.

When it comes to obtaining a HELOC on an investment property, it's essential to have the right tools and resources to streamline the process and increase your chances of approval. That's where Hitch comes in. With Hitch's innovative platform, you can easily connect with trusted lenders who specialize in investment property HELOCs. Their user-friendly interface makes it simple to compare rates and terms, apply for loans, and track your progress, all in one place. So, whether you're a seasoned real estate investor or just getting started, Hitch****Bold can help you get the HELOC you need to fund your investment property ventures.

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1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.5. The content provided is presented for information purposes only. This is not a The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.