Purchasing an investment property can be expensive. Owning one can be costly as well. To help with repairs, maintenance, upgrades, and renovations, many investment owners look for a Home Equity Line Of Credit, or “HELOC.”
These credit lines, however, can be hard to find. Because of their scarcity, many assume that it’s impossible to get a HELOC on an investment property. This myth, however, is entirely false.
Myth: You Can’t Get a HELOC on an Investment Property
A HELOC is not exactly a loan, but rather an extension of credit from which a homeowner can make withdrawals. The line of credit is secured with equity in a home, and users can withdraw from the credit line over several years. When the draw period is over, the repayment period begins.
HELOCs are a common option for homeowners. Someone who has significant equity in their primary residence can, with relative ease, go to their local bank, credit union, or mortgage agent and secure a line of credit using the equity in their home as collateral. But HELOCs are less common on investments.
The biggest issue, and probably the most important factor behind the myth, is that few mortgage institutions and individual loan professionals are experienced with HELOCs on investment properties. While you can secure the line of credit on your home from virtually any loan office, the same can’t be said for a HELOC on an investment property. This scarcity has led many people to assume that a HELOC for their rental or commercial property is simply impossible.
Reality: Yes, You Can!
The reality, however, is quite different. The truth is, if you work with the right loan agent, you can secure a HELOC on your investment property. Whether you need to repair a roof, renovate the kitchen, or add an addition to increase the property’s square footage, a HELOC can provide a reasonable method to pay for these expenses.
Our HELOCs for Investment Property Provide the Cash You Need
A HELOC on an investment property, as we have noted, is not impossible. In fact, these lines of credit are available to property owners who work with an experienced and knowledgeable loan agent.
Our HELOC, for example, provides up to $250,000 in available credit (with more available under certain factors) and allows for five years of withdrawal. Here are a few details for these loans…
Up to $250,000 in Credit, $500,000 Available in Certain Situations
These loans provide up to $250,000 in available credit, with a minimum loan amount of $10,000. While $250,000 is enough for most property owners, we do offer higher amounts when needed. HELOCs over $250,000 will be considered on a case-by-case basis, and some of the factors, such as interest rate or repayment structure, may change.
In fact, certain borrowers will be able to secure up to $500,000 in credit for their HELOC. While you don’t have to borrow that much, it can be available to qualifying borrowers.
Properties in LLC Accepted
Many investment properties are held in an LLC, which brings a variety of advantages to the owner. However, not all HELOCs for investment properties allow the home to be held by an LLC. If the property is held in an LLC, in other words, the financing may not be available.
With our HELOCs, however, this is not a concern. We allow LLC-held properties on these credit lines. For any loans held in an LLC, a business membership account will need to be established before closing the loan.
5-Year Draw, 10-Year Repayment
Regardless of the total, these HELOCs are structured with a 5-year draw period and a ten-year repayment period. This means that you have five years in which you can withdraw from the credit line, during which time the repayment requirements are limited. Usually interest-only payments are required during the five-year draw.
Once the five years are over, the loan converts to the ten-year repayment schedule. At this time, you begin making payments on whatever amount you borrowed through the HELOC.
No Prepayment Penalties
One of the top benefits of these loans is that you will have no repayment penalty. This can save hundreds, even thousands of dollars if you decide to pay off the HELOC early.
Must Meet DSCR Requirements
The DSCR, for “Debt Service Coverage Ratio,” is basically a calculation for whether or not the property is bringing an income. We won’t dive deeply into the details of DSCR, but just know that you’ll need a ratio of at least 1.25 to qualify for the HELOC. Essentially, your investment property needs to be generating a strong income to be eligible for this HELOC option.
Lenient Credit Requirements
To use these HELOCs, the borrower needs to have a credit score of at least 680. This is not an extremely high credit, so you don’t need a world-class credit history. If you have made steady payments on a manageable debt load, you should qualify for these loans.
Numerous Properties are Eligible
Investors with a variety of properties will be able to secure a HELOC. They are available for single-family homes, as well as properties with as many as four units. Residential, PUDs, condos, and townhouses are all eligible for these financing products.
If you want to learn more about our HELOCs for personal homes or investment properties, contact our team today. We would be happy to show you all the details for these financing options so you can make the right choice for your property!
