Using A HELOC To Buy Investment Property

 

Getting approval and obtaining a HELOC can be very beneficial for you and is worth the time it takes to get access to the funds. Using a HELOC on an investment property can allow investors to use the assets they have managed to build up equity. You can use this stagnant equity to fund many different things. You can use it to upgrade your home, boost credit, consolidate debt, or purchase an additional property. As a homeowner, it is important to at least understand how to use a HELOC to our advantage and obtain an investment property.

Using A HELOC To Buy Investment Property

What Is A Home Equity Line Of Credit (HELOC)?

A home equity line of credit is a loan the homeowner takes in addition to their mortgage and they are given a maximum draw amount. This loan is backed by the lendee’s equity in their home. This is similar to a mortgage but different in that the HELOC lender advances the lendees the funds to a set amount of time that the decision is upon. This period is called the “draw” period. During that time the borrower will need to use the credit. The second period is the repayment. This is where the borrower will no longer have access to use the funds but will need to repay the funds that they have used up until that point.

How To You Use A HELOC On Rental Property

If you are hoping to use a HELOC on a rented property, you will need to have an asset with enough equity to tap into. This is the only way that a HELOC will be a valuable source if you have enough equity. Using a HELOC on a rental property can be a great wealth-building strategy that many have used in the past. For one, investors can borrow money against the equity in one rental property to fund the purchase of another.

Additionally, investors can use a HELOC to fund home improvements for their rental properties, just as a homeowner would for their primary residence. Investors can also use HELOCs to pay off other high-interest debt if necessary. Because rental property mortgages generally carry a higher interest rate, smart investors can get a HELOC on their primary residences to pay off the mortgages on their investment properties. Even though this is a wonderful idea, it doesn't come without its own set of challenges. Banks are less likely to lend for investment properties.

This is because homeowners are more likely to default on a home that isn't their primary residence. It is also more difficult to qualify for a HELOC. Lenders will look at your debt-to-income ratio, credit score, open accounts, and the borrower's available cash. They are looking to see if you have access to liquid capital.

Can You Use A HELOC For A Down Payment On An Investment Property?

You can use a HELOC to buy an investment property and if you are going to take out a HELOC it is a great idea to use it on an investment. Leveraging your equity is using your money to its full potential. This allows you to get a return on your investment. Using your equity to buy an investment property has always been one of the best ways to get started on your investment journey. Your HELOC will use your primary residence as collateral, so it is important that you understand the loan, and what your payment will be, and be able to execute this financially.

In Conclusion

Everyone has a different financial situation that determines what is the right move for them. Work with a financial planner, lender, and real estate agent to get great advice and expertise.

.