Heloc on investment property

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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
7y

It's difficult (banks don't like them), but not impossible. Start making calls and shaking hands with local bank managers (small community banks often have more flexibility).

Here's what banks do like:

  • Deposit relationships - active accounts with strong balances and frequent/regular deposits
  • Low risk, secured debt

I point that out because you'll get a lot more traction with:

"Hi Mr. Bank Manager, I'm looking to open several deposit accounts with a local bank, and I'd also consider opening a 12 to 24 month CD (if I can turn around and borrow against it in order to establish a secured debt relationship with your bank). Once we've established a track record, I'd also like to pursue a line of credit secured with one or more of my rental properties later on. Is that something you think you could work with?"

than you will with: 

"Hey, Do you guys do HELOCs on rental properties?"

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  • Jake S.
    Rental Property Investor · MN · Member since 2017 · 864 posts · 555 votes
    7y

    Hey @Dejuan Calloway Yes it's possible if you have enough equity. Have you sat down and spoke with a few community banks and credit unions about it?

    0Reply
  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    7y

    It's difficult (banks don't like them), but not impossible. Start making calls and shaking hands with local bank managers (small community banks often have more flexibility).

    Here's what banks do like:

    • Deposit relationships - active accounts with strong balances and frequent/regular deposits
    • Low risk, secured debt

    I point that out because you'll get a lot more traction with:

    "Hi Mr. Bank Manager, I'm looking to open several deposit accounts with a local bank, and I'd also consider opening a 12 to 24 month CD (if I can turn around and borrow against it in order to establish a secured debt relationship with your bank). Once we've established a track record, I'd also like to pursue a line of credit secured with one or more of my rental properties later on. Is that something you think you could work with?"

    than you will with: 

    "Hey, Do you guys do HELOCs on rental properties?"

    Copeland Morgan LLC4.770 Reviews
    WebsiteView Page
    5Reply
  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    You can get a 1st mortgage HELOC on an investment property and you can draw on this HELOC for the full 30 years. If you don't want a 1st mortgage HELOC, then Pen Fed Credit union will go to 80% max CLTV but you can not own any more than 4 properties?

    1Reply
  • Axel MeierhoeferPro Member
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    7y

    I think it is also important to ask why you want to take out a HELOC on your rental property? In case you want to buy a flip or another rental property, I would recommend to use Ridge Lending new HELOC and apply it directly to your intended purchase.

    If you plan to consume the funds you pull out, I would recommend to ask yourself why you have the rental property and how consuming equity helps you achieve your goals.

    0Reply
  • Steven Griffith
    Rental Property Investor · Chapel Hill, NC · Member since 2019 · 120 posts · 119 votes
    7y

    @Dejuan Calloway

    Hello! I'm sure others have much more experience to draw on, but I actually have this exact same question. In fact, coincidentally, I actually went into two major banks today to talk to both Loan Officers about this exact issue. Here's what I was told:

    Bank 1 - This is my primary back where I have had my checking/savings for 4 years. Their answer was: No, they won't do a heloc on a rental property unless it's classified as a second home. To be classified as such, it would need to be primarily air bnb or another short term rental. Since I have renters full time, with a lease, it doesn't qualify so they won't do a HELOC. The loan officer encouraged me to refinance instead and take the cash out since I have significant equity in the house. Im not interested in this though bc my original morthage has an interest of 3.5%.

    Bank 2 - This is the bank that bought my original loan and now hold my rebtal property mortgage. They said: Yes, they will do a HELOC, but with a much lower LTV - 60% instead of the 75 - 89% advertised elsewhere.

    I have not yet approached smaller banks or credit unions, although I plan to just to hear their response and rates.

    I'll be following this post quite closely - thanks everyone in advance for your insights!

    2Reply
  • Dejuan Calloway
    OP
    Rental Property Investor · Rapid City · Member since 2018 · 38 posts · 1 vote
    7y
    Originally posted by @Jeff Copeland:

    It's difficult (banks don't like them), but not impossible. Start making calls and shaking hands with local bank managers (small community banks often have more flexibility).

    Here's what banks do like:

    • Deposit relationships - active accounts with strong balances and frequent/regular deposits
    • Low risk, secured debt

    I point that out because you'll get a lot more traction with:

    "Hi Mr. Bank Manager, I'm looking to open several deposit accounts with a local bank, and I'd also consider opening a 12 to 24 month CD (if I can turn around and borrow against it in order to establish a secured debt relationship with your bank). Once we've established a track record, I'd also like to pursue a line of credit secured with one or more of my rental properties later on. Is that something you think you could work with?"

    than you will with: 

    "Hey, Do you guys do HELOCs on rental properties?"

    Perfect! I really appreciate all the information. 

    0Reply
  • Joe Hermanson
    Rental Property Investor · Naperville, IL · Member since 2015 · 46 posts · 13 votes
    7y

    Are the HELOC rates generally higher for an investment property, as opposed to a HELOC on your primary residence? Similar to a regular mortgage.

    0Reply
  • Steven Griffith
    Rental Property Investor · Chapel Hill, NC · Member since 2019 · 120 posts · 119 votes
    7y

    @Joe Hermanson

    Yes, that's what I've concluded after speaking to 4 different banks now.  They all told me the same thing - if you have reported income on your previous years taxes for your investment home, then their rates are either higher or (in 2/4 cases) they don't do HELOCs on rentals.  The only option is to do a cash out refinance.

    They all made the caveat and distinction that if it is just a "second home" which I rent out for air b'n'b or otherwise, then they can do a HELOC with the better rates. In my situation, though I've had renters for the past 3 years ans have reported that income on taxes.

    0Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    7y
    Originally posted by @Dejuan Calloway:

    I have a rental property now that I wanted to take a Heloc out on this this possible and how?

     I noticed that you're north of the 46th parallel. Are you a foreign investor? If so, your options might be limited regarding financing.  Are you looking at homes in The USA or Canada Sir?

    0Reply
  • Danielle Wolter
    Rental Property Investor · San Diego, CA · Member since 2019 · 290 posts · 254 votes
    7y

    @Dejuan Calloway I am actually in the process of getting a HELOC on a rental property. I contacted my regular lender first, and he couldn't do it but gave me the name of a credit union that would. I would recommend calling around to local credit unions. Mine will only give me 70% LTV, but that's pretty typical. I don't know if the interest rate is higher than a HELOC on your personal home, but I am personally against taking a HELOC against my home. I try to keep business and personal separated in case the s*** hits the fan.

    1Reply
  • Joe Hermanson
    Rental Property Investor · Naperville, IL · Member since 2015 · 46 posts · 13 votes
    7y

    After some advice on BiigerPockets I found that Penfed Credit Union does HELOC's on investment properties. The HELOC is based on a 12 year term, you can pay just interest or a full payment and it's interest rate is Prime plus 1%. No cost unless you need to have an appraisal done, which seems unnecessary in most cases.

    0Reply
  • Edward Doherty
    Member since 2018 · 3 posts · 0 votes
    7y

    @Joe Hermanson

    In my case I owner occupied a 2 family and prior to leaving the 2 family for a single family that we purchased, I got a HELOC on the 2 family. I have not used it yet but hope to if the right opportunity comes along. Those owner occupying should consider getting helocs before their next purchase, because it is much more difficult to do so after.

    The heloc on 2 Family is prime +.25.

    If I got a heloc on my single family I may be able to find prime -1.

    Although I would prefer to invest with the equity in the 2 family with such a difference in rates I may have to invest with the equity in our home. Thoughts?

    0Reply
  • Joe Hermanson
    Rental Property Investor · Naperville, IL · Member since 2015 · 46 posts · 13 votes
    7y

    Edward, I wasn't aware you got a HELOC before you left the (now) investment property (2 flat). I agree, I would use a HELOC from your principle residence first (because of the better rate) and then from the investment property if needed. Good luck.

    0Reply
  • Megan Stafford
    Rental Property Investor · Pleasant Hill, CA · Member since 2016 · 19 posts · 5 votes
    6y
    Originally posted by @Kevin Romines:

    You can get a 1st mortgage HELOC on an investment property and you can draw on this HELOC for the full 30 years. If you don't want a 1st mortgage HELOC, then Pen Fed Credit union will go to 80% max CLTV but you can not own any more than 4 properties?

    Hi Kevin, Do you mean you can get a 1st mortgage HELOC with your lending company? Because I would love to apply if so!

    0Reply
  • Nick Luongo
    Boston, MA · Member since 2009 · 54 posts · 2 votes
    6y

    Originally posted by @Danielle Wolter:

    @Dejuan Calloway I am actually in the process of getting a HELOC on a rental property. I contacted my regular lender first, and he couldn't do it but gave me the name of a credit union that would. I would recommend calling around to local credit unions. Mine will only give me 70% LTV, but that's pretty typical. I don't know if the interest rate is higher than a HELOC on your personal home, but I am personally against taking a HELOC against my home. I try to keep business and personal separated in case the s*** hits the fan.

    Danielle, I know this thread is a bit old but do you mind sharing what bank gave you the heloc on investment property? 

    I had one with Naveo bank that just expired (5.5% fixed, 75% ltv). To find this loan I simply called a dozen local credit unions and asked. I may reup that loan and package it with another property (which requires closing costs and appraisal on each) but want to look around a bit to see if there is anything better. I did hear about penfed but their site says you can't own more than 3 properties.

    Also to OP, I personally think Jeff's email recommendation to bank is a bit cringeworthy and salesy.. I wouldn't recommend that but maybe it's just me. If banks offer heloc's on investment properties then they will tell you what's required, you shouldn't need to sell them

    Thanks

    0Reply
  • Cian R.
    Member since 2019 · 71 posts · 22 votes
    6y
    Originally posted by @Steven Griffith:

    @Dejuan Calloway

    Hello! I'm sure others have much more experience to draw on, but I actually have this exact same question. In fact, coincidentally, I actually went into two major banks today to talk to both Loan Officers about this exact issue. Here's what I was told:

    Bank 1 - This is my primary back where I have had my checking/savings for 4 years. Their answer was: No, they won't do a heloc on a rental property unless it's classified as a second home. To be classified as such, it would need to be primarily air bnb or another short term rental. Since I have renters full time, with a lease, it doesn't qualify so they won't do a HELOC. The loan officer encouraged me to refinance instead and take the cash out since I have significant equity in the house. Im not interested in this though bc my original morthage has an interest of 3.5%.

    Bank 2 - This is the bank that bought my original loan and now hold my rebtal property mortgage. They said: Yes, they will do a HELOC, but with a much lower LTV - 60% instead of the 75 - 89% advertised elsewhere.

    I have not yet approached smaller banks or credit unions, although I plan to just to hear their response and rates.

    I'll be following this post quite closely - thanks everyone in advance for your insights!

    Hi Steven, were you able to secure your HELOC? I am beginning that process now and don't know where to start!

    1Reply
  • Steven Griffith
    Rental Property Investor · Chapel Hill, NC · Member since 2019 · 120 posts · 119 votes
    6y

    Hi @Cian R.,

    I was exploring this as an option for a deal I found, but wasn't quick enough and someone else snapped it up before I could find decent rates.  That was my fault for being too slow - lesson learned.

    I ended up talking to 8-9 banks, though, and now have 3 banks tat will do a HELOC should I need it in the future. It's still an option for my next property, but as of yet I have not pursued/obtained a HELOC on my rental. If you're actively looking and the property is in Virginia, though, I would recommend reaching out to UVA Community Credit Union as a starting point.

    0Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Steven Griffith just keep in mind it could take 2-4 weeks to close on a Heloc so if you want to move fast on a deal, best to have it in place.

    1Reply
  • Cian R.
    Member since 2019 · 71 posts · 22 votes
    6y

    @Steven Griffith @Brian G. is there any downside to applying for the HELOC now? So that it's all set up and ready to go for when you find your next deal?

    Do you mind sharing the name of the three banks that you have potentially lined up? I'm still struggling to find a bank that will provide a HELOC on an investment property.

    Thanks!

    0Reply
  • Cian R.
    Member since 2019 · 71 posts · 22 votes
    6y

    So after speaking with 30 individual lenders, I’ve reached the following conclusion:

    No Lender will give you a HELOC if the property is held under an LLC. You will have to go with a Business Line of Credit or a Renovation Loan.

    However three tidbits of useful information that someone may find helpful on their journey:

    • KeyBank National Associates will match HELOC rates for a Business Line of Credit if the LLC is securing a personal home
    • Mid-Hudson Valley Federal Credit Union offers 1.99% introductory rate for HELOCs for the first six months – the best I’ve seen in my research of 30 lenders
    • I’ve been told that US Bank will provide HELOCs for investment properties
    0Reply
  • Steven Griffith
    Rental Property Investor · Chapel Hill, NC · Member since 2019 · 120 posts · 119 votes
    6y

    Hi @Cian R.,

    Sorry for the delayed response - I didn't get a notification of your response above until now.  The three banks I've reached out to are:

    1) UVa Community Credit Union (Virginia, my property was in Virginia)

    2) Coastal Federal Credit Union (NC, a recommendation from a different thread)

    3) Peoples Bank of NC (They would 'work with me')

    Also of note, my rental at the time was in my name, not an LLC, so I don't know if these banks are able/willing to do a HELOC with an LLC, as per your last message.

    1Reply
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