Heloc or personal loan on rental property

Atlanta, Georgia
Personal Finance
9moFollow

Heloc or personal loan on rental property

Vitaliy Zima
Member since 2020 · 30 posts · 24 votes

Hi,

I rehabbed a property I bought last year using my heloc (cash purchase).

The heloc current rate (6.5%) is slightly lower that what I would get if I refinanced and pulled money from my investment property (7.25% dscr loan). I don't currently have a need to pull the money from the property, but I'd like to have funds ready should I find a good deal somewhere. I have bad debt to income ratio as I have decent amount of rentals under my name and sole person with a w2 income in family. I don't like to have to pull money out and then have a 30 year loan on the rehabbed property so I was thinking heloc but due to debt to income they won't approve me. Do I get a personal loan or what options do I have to pull money out and have it readily available should I need it? 

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  • Katie Smith
    Member since 2023 · 348 posts · 190 votes
    9mo

    Hi Vitaliy!

    It sounds like a cash out refinance on one of your rentals could be a great fit for what you're looking to do next. Even if you don't need the funds immediately, DSCR loans typically take about 20–30 days to close, so getting this in motion now can put you in a strong position going into the new year.

    A cash out DSCR would allow you to pull equity from your property without needing to verify personal income, while keeping the home as a rental. It gives you flexible capital on hand for your next purchase, renovations, etc.

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  • Brittany MinocchiBusiness Member
    Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
    9mo

    Hi Vitaliy! 

    If you've owned an investment property for at least a year, there's a chance you may be able to get a better rate than 7.25% on a debt service cash out refinance. It will also depend on the property value, loan amount, your credit score, unit count, etc...but it's possible. That may make it easier to make the decision if the new loan rate is closer to your current HELOC rate.

    Another thing to keep in mind is that HELOCs are typically variable rate, and a cash out refinance is 30-year fixed (unless you are specifically looking for an ARM). You can pay the loan off before the 30 years is up, you just need to make sure you don't trigger your prepayment penalty. The penalty can be anywhere from 1-5 years; you'll see a higher rate with a shorter prepay and a lower rate with a longer prepay, so if the goal is the lowest rate, a 5 year is your best bet. After that 5 years, you're free to make extra payments, refinance or sell penalty-free.

    As you may already know, debt service loans don't require income, employment info, tax returns or DTI, so your high DTI won't be an issue.

    You should also compare the cost to the (possibly) increased interest rate, cost of a refinance, and the potential income you'd be making from a property. If you don't have the funds available and find a great deal, that opportunity cost could be more significant than what a slightly higher rate and/or refinance cost would be. 

    Happy to answer any questions you might have, feel free to reach out! 

    [email protected]330-354-6590
    Brittany Minocchi - Barrett Financial Group, LLC522 Reviews
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  • Stephen QuesinberryBusiness Member
    Real Estate Agent · Cumming, GA · Member since 2016 · 226 posts · 157 votes
    8mo

    You’re thinking about this the right way — it’s really a tradeoff between optionality and locking in permanent debt.

    If you don’t actually need the cash today, I’m generally hesitant to do a full cash-out refi just to have funds sitting, especially if it means putting a 30-year loan on a good asset. HELOCs are great for flexibility, but as you’ve seen, banks still underwrite you, so DTI becomes the limiter.

    I'd avoid personal loans — higher rates, short terms, and they hit DTI without giving you much flexibility.

    What I've seen work instead is keeping leverage low until a deal is real, then refinancing at that point, or lining up capital in advance (DSCR lenders, private money, or partners) so you can move quickly when something comes up.

    Happy to compare notes if helpful. 

    Cornerstone Real Estate Partners
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  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    8mo

    @Vitaliy Zima we work with a few lending partners that allow DSCR type HELOCs, while holding title in an LLC. Happy to go over your options and see what works best for you.

    [email protected]619-456-8311
    Helm Mortgage Corp.5127 Reviews
    WebsiteView Page
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  • Mike Cho
    Member since 2026 · 8 posts · 0 votes
    4mo

    I actually just got the same idea last week and did a HELOC. They did not really ask for any docs, and income verification was all good with my business deposits, it also funded in like the same week I applied, which I was very impressed about. I can share his info or his site right here if you want!

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