If you own investment property, you may be able to leverage your investment through a home equity line of credit, also known as a HELOC. 

 

A HELOC is a revolving line of credit tied to the equity you’ve built in your property. Since a HELOC taps into the property’s equity, you must owe less than the current appraised value of your property to qualify. Depending on your lender, you also may need to meet credit score requirements, prove a certain debt-to-income ratio and have a certain percentage of your property paid off.

 

While those looking to secure a HELOC on investment property may face more stringent qualifications than what’s required for a primary residence, the function of the HELOC remains the same.

Are you looking for a flexible, open-ended line of credit to increase the value of your current investment property or obtain additional investment properties? If so, a HELOC may be the right choice.

 

Typically, HELOCs feature a draw period, during which you can borrow up to your credit limit, and a repayment period. This flexibility allows you to borrow exactly what you need, when you need it. 

 

In many ways, HELOCs on investment properties function the same way as traditional HELOCs. A HELOC on investment property is also flexible in repayment because you can pay it back in full and restore your maximum line of credit, or you can repay your debt in smaller amounts. Once your draw period ends and you move into the repayment phase, your monthly payments include principal and interest.

 

But there are some differences between traditional HELOCs and HELOCs for investment property. Since borrowers aren’t using their primary residence to secure the loan, lenders typically require higher credit scores and significant cash reserves. Interest rates on investment property HELOCs are also often higher than rates for traditional HELOCs.

You may want to consider improving your investment property to add to its value before selling, so you can maximize profit. Or maybe you need extra cash for a down payment on another investment property and plan to use the income generated by that property to pay down your HELOC.

 

Since your investment property becomes collateral for your HELOC if you default on payments, it’s important to fully consider your financial picture and your plans for how to spend the funds before deciding if a HELOC on your investment property makes the most sense for you.

 

You don’t have to make the decision alone. First Merchant’s home equity experts are here to help. Schedule a meeting at your local banking center or call 1-800-205-3464 to learn more about your options.