Should I Take Money Out of Investments or Take Out a Home Equity Loan?

The Quick Read: It depends on the size of your taxable gain, how soon you need the cash, and whether your income can carry a new payment, but selling is usually simpler for a modest, near-term need while borrowing fits when a large embedded gain makes the sale expensive. Selling costs you a tax bill and future growth. Borrowing keeps the portfolio intact but puts a lien on a property and adds a payment you must keep making.

• Selling triggers tax on the gain and ends the compounding on what you sold. Holdings with losses are cheaper to sell.
• A home equity line keeps the portfolio invested, but it is secured debt that floats in price and can be reduced or frozen.
• On an investment property, a home equity line through Lendmire’s wholesale network tops out at 70% CLTV and a $500,000 line, with a 700 minimum credit score.
• If the cash is a down payment on a rental, a DSCR loan tests the rental’s income against its payment, while a home equity line tests your own debt-to-income ratio. The two files do not use the same measure.
• Some lenders limit or scrutinize borrowed funds used for a down payment, so check the program before you draw.

What Does Selling Investments Actually Cost?

Selling costs the tax on the gain plus the growth you give up on the money. The tax side is easy to estimate before you sell, and the growth side is the part people undercount.

Holdings kept longer than a year are taxed at long-term rates. Those federal capital gains rate tiers are 0%, 15%, or 20%, set by your total taxable income. Holdings sold within a year of purchase are taxed as ordinary income, which can flip the whole decision. A larger sale can also push part of the gain into a higher bracket, because the bracket depends on total taxable income and not on the gain alone. A separate 3.8% surtax on net investment income can apply at higher incomes.

Losses change the picture. Vanguard’s explainer on realized gains notes that harvesting losses can offset gains. A position sitting at a loss is often a more affordable thing to sell, because the sale creates no gain to tax.

Then there is the compounding you lose. Money pulled out of the market stops earning, and you cannot buy back the same position without risk. If you expect to need the cash again in a few years, that matters more than the tax bill.

Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.

Sell or Borrow: Side by Side

Selling is cleaner and borrowing is cheaper up front. The table shows where each path puts the cost and the risk.

The column to look at most closely is “what backs it.” Selling pledges nothing. Borrowing puts a property at risk if the payment stops.

What Does a Home Equity Line Really Cost?

A home equity line costs interest, closing fees, and the risk that the lender can change the line. It is a second mortgage in many files, and it sits behind the first lien if the home is ever sold under pressure.

A HELOC is open-end credit with a draw period, usually at a variable rate. A lender can also freeze or reduce the line if the home’s value falls or your finances change. That matters if the line is your funding plan for a purchase. A line you counted on can shrink at the wrong moment.

If you sell the home, you generally must pay the line off in full, and some terms end with a balloon payment. The debt is secured by the property itself, so a rental that underperforms still leaves you owing on the property that backs the line.

Borrowing does not remove the tax question either. It defers it. If you plan to repay the line out of the same portfolio next year, you may face the same gain then.

How the Network’s Home Equity Line Is Built

Lendmire arranges home equity lines through select wholesale partners. They are lines, not fixed-rate lump-sum loans, so the “home equity loan” in your question maps to a line with a draw period.

The structure is consistent across the files. At least 75% of the line is drawn at closing. Pricing floats during both the draw and repayment periods and never converts to fixed. On a primary residence or second home, one structure uses a 3-year interest-only draw followed by a 17-year amortizing repayment. The other uses a 5-year interest-only draw followed by a 25-year repayment. Investment lines use the 5-year draw structure only.

Leverage depends on the occupancy of the property securing the line:

• Investment property: the ceiling is 70% CLTV, reached at a 700 or 720 credit profile. A score above 700 buys eligibility, not extra leverage. The maximum line is $500,000, and 700 is a hard floor.
• Primary residence or second home: the ceiling reaches 90% CLTV, but only at a 720-or-better credit profile. Lower scores sit in lower tiers.
• Lines above $500,000: these are primary-residence only. They require a 700 or better credit profile (720 on the 5-year-draw structure), cap at 75% CLTV, and require a full appraisal.

Other mechanics matter for planning. Debt-to-income is capped at 50%, and the qualifying payment is the interest-only amount on the maximum draw. Lines at or below $500,000 ordinarily use an automated valuation instead of a full appraisal. Title must be held by an individual or a revocable living trust. An LLC cannot hold title on a home equity line, which is the sharpest structural difference from a DSCR loan. A property already deeded to an LLC needs a vesting change or a DSCR cash-out instead. Home equity lines are available only in Lendmire’s 16 full-service states, which is narrower than its DSCR footprint of 41 markets, including Washington, D.C. All of this is subject to lender guidelines and full file review.

Does the Money Go Into a DSCR Purchase?

If the cash funds a rental purchase, you are really planning for two files at once. The home equity line has its own approval, and the DSCR loan has its own. The strongest plan clears both tests: enough equity and enough rental coverage.

Most DSCR purchase files across the network land at 75% to 80% LTV on an investment property, which means 20% to 25% down. Select programs reach 85% LTV on a purchase, which means 15% down, typically at around a 700+ score. A DSCR cash-out refinance on a standard rental tops out near 75% LTV, and about six months of seasoning is the common expectation. Credit floors differ by program, and a 620 floor exists in parts of the network. Most programs want closer to 660, and 700+ opens the strongest leverage tiers.

Coverage is a program-by-program matter. A DSCR of 1.00 is where many select programs start, and stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. The ratio compares rent to the full monthly obligation of principal, interest, taxes, insurance, and any dues. Clearing 1.00 does not mean the property produces positive cash flow, because repairs, vacancy, management, utilities, and capital spending sit outside the calculation.

Here is where the funding source shows up. Liquidating investments is easy to document with brokerage statements, the sale confirmation, and the transfer into your account. Borrowed funds are less certain. Some programs treat borrowed down-payment money as ineligible or ask for more of the borrower’s own funds, so the answer depends on the lender, the program, and the file. Ask before you draw, not after.

Reserves complicate the sell option. Reserves are liquid assets left after closing, commonly around 6 months of PITIA, though they vary by lender, leverage, loan size, and transaction type. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived. Loans above that size typically step up to about 9 months. Selling the portfolio can shrink the reserve-eligible assets you can show, since some lenders haircut or exclude brokerage balances. A line keeps the portfolio in place as a reserve asset but adds a payment.

For the underlying loan mechanics, see Lendmire’s complete DSCR loans guide. DSCR loans can also be made to LLC-titled entities, subject to lender program eligibility, which a home equity line cannot do.

The Third Path: Cash-Out on the Rental Itself

A DSCR cash-out refinance on the rental can be an alternative to a line on your own home, and it changes what is at risk. The new loan is secured by the rental, not by the house you live in. If the rental underperforms, your home is not the collateral.

The tradeoff is leverage and structure. On a standard rental, DSCR cash-out tops out near 75% LTV, compared with a 70% CLTV ceiling on an investment home equity line. A DSCR cash-out replaces the existing loan, so the old payment is replaced by a new one, and coverage has to clear. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Another option is to mix sources. An investor with a mid-sized gain and a long-held position might sell part of the portfolio and fund the rest from a line, which splits the tax bill and keeps the debt smaller.

When Selling Wins, and When Borrowing Wins

Selling tends to win when the gain is small or negative, the need is modest and within a year or two, or the portfolio is concentrated in one position you wanted to trim anyway. It also wins when you have no stable income to support a new payment. Selling in a 0% tax bracket year can cost nothing federally.

Borrowing tends to win when the embedded gain is large, the need is a defined amount, and you have a repayment plan that does not rely on the same portfolio. It also fits an investor who expects the rental’s income to carry the debt.

Neither path is worth the cost when the need is tiny and one-time. A cash buffer usually covers that cheaper than a sale or a new lien. People who borrow against a home to invest should also remember that every investment can lose value. Lendmire’s piece Should You Cash Out Equity In Home To Invest In Stocks? covers that risk in depth.

Mistakes That Derail the Decision

• Treating a line as guaranteed cash. A lender can freeze or cut a line when conditions change, so plan for that access risk.
• Skipping the repayment plan. A line repaid from the same portfolio next year brings back the same gain.
• Assuming a DSCR over 1.00 equals profit. It only shows rent covers the loan payment.
• Ignoring the vesting rule. A rental held in an LLC cannot secure a home equity line.
• Counting investment accounts as full reserves. Some lenders apply haircuts, so confirm what the file will count.
• Ignoring state availability. Home equity lines through the network exist in 16 states only, and a few have property-specific limits.

Key Terms Defined

Capital gain: the profit when you sell an asset for more than your adjusted cost basis.

CLTV (combined loan-to-value): all loans secured by the property, added together, divided by its value.

HELOC: a revolving line secured by a property, with a draw period followed by repayment.

PITIA: principal, interest, taxes, insurance, and any association dues that make up the monthly housing obligation.

DSCR: debt service coverage ratio, which compares a property’s rent to its PITIA.

Reserves: liquid assets left over after closing, usually counted in months of PITIA.

Seasoning: the required time between buying a property and taking cash out against it.

Next Step

If you are considering a home equity line and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. It can also lay them next to a DSCR cash-out on the rental, which keeps your home out of the collateral. Lendmire is a broker, and working with it is not a commitment to lend. Rental markets and portfolio values both move, so an investor who sizes either debt against a bad year has the more durable plan.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker. Home equity lines of credit, on a primary residence, a second home or an investment property, are arranged through wholesale lenders in Lendmire’s 16 full-service states, and every line is underwritten by the lender under its program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. IRS Topic 409: Capital gains and losses

2. IRS Topic 559: Net investment income tax

3. Vanguard: Realized capital gains