Investing in real estate is a powerful way to build long-term wealth; however, finding the funds to get started can be a significant challenge.
If you’re sitting on a significant amount of home equity, a home equity line of credit (HELOC) might be your secret weapon.
But what is a HELOC in real estate, and how can it support your investment goals?
Let’s break it down.
Learn about your home equity options.What is a HELOC in real estate?
A HELOC is a revolving line of credit that allows homeowners to borrow against the equity in their primary residence.
Unlike a traditional home equity loan that provides a lump sum upfront, a HELOC works more like a credit card. You can draw funds as needed (up to a preset limit), repay them, and then borrow again.
Key benefits of a HELOC
- Lower interest rates than unsecured loans
- Flexible borrowing and repayment terms
- Potential tax-deductible interest (consult your tax advisor)
Real estate investors use HELOCs to finance rental properties, flip homes, or make strategic upgrades that boost property value.
Since HELOCs typically come with lower interest rates than personal loans or credit cards, they offer a flexible, cost-effective way to access cash.
What types of properties can you buy with a HELOC?
A HELOC can open doors to several real estate investment opportunities, including:
- Single-family rentals: Generate consistent rental income and potential appreciation.
- Multi-family units: Earn income from multiple tenants under one roof.
- Fix-and-flip properties: Buy distressed homes, renovate, and sell for a profit.
- Vacation rentals: Tap into high-demand short-term rental markets.
- Land acquisitions: Purchase land for future development or resale.
Choosing the right property type depends on your experience, budget, and investment timeline.
How to use a HELOC for real estate investing
Using a HELOC to invest in real estate begins with understanding your current equity.
To calculate your equity, subtract your current mortgage balance from your home’s appraised value.
For example, if your home is worth $400,000 and you owe $250,000, your equity is $150,000. Depending on your lender, you may be eligible to borrow up to 80-90% of your home’s value minus your mortgage.
Ways to invest using a HELOC
- Down payment on an investment property: Use funds to secure a mortgage for a rental property.
- Renovation and upgrades: Boost property value or appeal with smart improvements.
- Bridge financing: Temporarily fund a purchase before selling another property.
Understanding HELOC terms
When comparing HELOC offers, it’s important to understand the terms involved:
- Draw period: Typically 5 to 10 years, where you can borrow and repay as needed.
- Repayment period: After the draw ends, you enter a 10 to 20-year repayment phase.
- Introductory rates: Some HELOCs offer lower rates initially that adjust later.
- Rate caps: Know the maximum interest rate that can be charged.
Understanding these elements helps you choose a HELOC that fits your financial strategy.
Questions to ask before using a HELOC
Before moving forward, ask yourself:
- What’s my investment goal—long-term rental income or short-term flips?
- What’s my risk tolerance?
- Can I reliably repay the line of credit?
- Will I manage the property or hire help?
- Do I understand the market I’m entering?
Being clear on your strategy will help ensure that you’re making informed, sustainable investment decisions.
HELOC vs. cash-out refinance: Which is better for investors?
While both options unlock home equity, they function differently:
| Feature | HELOC | Cash-out refinance |
| Loan type | Revolving credit | New fixed-term mortgage |
| Interest rate | Variable | Usually fixed |
| Closing costs | Lower | Higher |
| Best for | Ongoing or short-term funding | Large lump-sum needs |
A cash-out refinance replaces your existing mortgage with a new one that’s larger than what you currently owe. You receive the difference in cash, which you can use for investments.
This option is ideal if you want to lock in a fixed interest rate or if current mortgage rates are favorable. However, since it extends or restarts your mortgage term, it’s important to calculate the long-term costs.
If you want long-term predictability, a cash-out refinance might be better. But for flexible, lower-cost borrowing, a HELOC can be a smart choice.
Explore our cash-out refinance options to compare solutions.
How to qualify for a HELOC
Lenders consider several factors when evaluating your application:
1. Credit score
A higher credit score boosts your approval chances and may earn you a lower interest rate. Most lenders look for a score of at least 620–700.
2. Debt-to-income (DTI) ratio
Your DTI reflects how much of your monthly income goes toward debt. Aim for a DTI of 43% or lower to qualify for the best rates.
3. Home equity
You typically need at least 15–20% equity in your home to be eligible. More equity increases your borrowing limit.
Risks of using a HELOC
As with any financial product, a HELOC comes with potential downsides:
- Variable interest rates: Your rate (and payment) can increase over time.
- Risk to your home: Your house is collateral. Defaulting could mean foreclosure.
- Overspending: Easy access to funds can lead to poor financial decisions.
That’s why it’s critical to use HELOC funds strategically and stick to a repayment plan.
Final tips for success
To make the most of your HELOC as a real estate investor:
- Start small with manageable investments
- Track your borrowing and repayment closely
- Consult a financial advisor or tax professional before making big decisions
- Build a reserve fund to cover unexpected expenses or vacancies
- Reinvest profits wisely to scale your portfolio over time
Ready to explore your options?
Whether you’re buying your first investment property or scaling a real estate portfolio, our team is here to help.
Get started with GO Mortgage to see how a HELOC fits into your strategy.
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