Banks That Offer a HELOC to Buy a Rental Using Home Equity and Mutual Funds

The Quick Read: Home equity and mutual funds fund a rental through two different credit lines, because a HELOC is secured by real estate while mutual funds secure a separate securities-backed line, so the right lender depends on which asset you pledge, the equity you hold, and your credit profile. Neither line is a DSCR loan, but either can supply the down payment on one.

• On an investment property, the home equity lines Lendmire’s wholesale network places top out at 70% CLTV, with a 700 credit minimum and a $500,000 maximum line.
• On a primary residence or second home, the ceiling reaches 90% CLTV, but only at a 720 or better credit profile.
• Mutual funds do not secure a HELOC. They can be sold, or pledged to a securities-backed line from a different type of lender.
• A DSCR purchase loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. The line payment sits outside that ratio.

Two Credit Lines Hiding in One Search

Most searches for this topic blend two products that work differently. A home equity line of credit is a revolving line secured by a property. The property is usually your primary home or an existing rental. A securities-backed line of credit, or SBLOC, is a revolving line secured by a brokerage portfolio, and mutual funds can sit inside that portfolio.

So no bank offers a HELOC against mutual funds. A bank can offer a HELOC against your house and, through a different department or affiliate, an SBLOC against your funds. You can use both to raise a down payment. The two products carry different risks and different paperwork.

Lendmire is a mortgage broker, not a lender. It places home equity lines and DSCR investor loans through select wholesale lenders, so the practical question becomes which lender’s program fits your property, equity, and credit.

Which Banks Offer These Lines?

Offerings fall into lender types, not a ranked list. The lender that fits depends on your occupancy, equity, credit, and how much you want to borrow. A bank list would age quickly and would not tell you who will actually write your file.

NerdWallet notes that a HELOC on an investment property is possible. It adds that the lender pool is smaller and the borrowing limits are lower than on a primary home. The White Coat Investor says lenders treat these lines more cautiously because they see higher default risk, so fewer of them offer one.

That narrower pool is the main reason a broker helps. A broker that shops several wholesale lenders can screen the scenario against each program’s rules before you apply. Lendmire’s home equity availability covers its 16 full-service states, which is narrower than its 41-market DSCR footprint.

How Underwriting Treats a Home Equity Line, Step by Step

1. Pick the securing property. A line on your primary home is the common choice. A line on an existing rental is the other option, and it sits in the tighter lane.

2. Apply the CLTV ceiling. Combined loan-to-value adds the first mortgage and the new line, then divides by property value. On this network, an investment property tops out at 70% CLTV. A primary residence or second home reaches 90% CLTV, and that figure exists only at a 720 or better credit profile.

3. Check credit. The network’s program floor is 600. An investment line needs 700, and a 700 and a 720 score both reach the same 70% ceiling, so a higher score buys eligibility rather than extra leverage. Lenders use a single-bureau score, the report must be no more than 90 days old at closing, and rescores are not allowed.

4. Run DTI. The maximum debt-to-income ratio is 50%, and 45% for profiles from 600 to 679. A ratio above 45% requires a 680 minimum. The lender reviews your file on the interest-only payment calculated on the maximum draw, not on what you plan to borrow.

5. Value the property. Lines at or below $500,000 ordinarily use an automated valuation instead of a full appraisal. An investment line caps at $500,000, so it stays in that lane, though a higher CLTV can trigger a second valuation. A borrower may also request a full appraisal.

6. Set the draw structure. Primary residences and second homes can choose a 3-year interest-only draw with a 17-year repayment, or a 5-year draw with a 25-year repayment. Investment lines use the 5-year draw and 25-year repayment only. At least 75% of the line is drawn at closing, and the pricing floats and never converts to fixed.

The 75% draw requirement changes the planning. You cannot open a large line and leave it mostly undrawn as a backup. The payment obligation begins at closing, and it counts against your cash flow from day one.

Where Mutual Funds Fit

Mutual funds reach a rental purchase by three routes. Each moves risk to a different place.

Selling the funds. This is the simplest route. Selling can trigger a taxable gain, and tax treatment varies, so consult a qualified professional before choosing it. Sold proceeds are your own money, so the file avoids the borrowed-funds question entirely.

Pledging to a securities-backed line. An SEC investor alert on securities-backed lines describes the product as a revolving line secured by securities in your investment accounts. It adds that some lenders may skip a credit check and set the limit solely on portfolio value. That makes the line easy to open, and it does not make it low-risk.

Investor.gov explains that advance rates vary by institution. It also explains that a drop in collateral value can trigger a maintenance call. You then have a short window, typically two or three days, to add collateral or repay. If you cannot, the firm can sell your securities and reduce the credit limit. A forced sale lands at the worst moment, after prices have already fallen.

SBLOCs are usually non-purpose lines, meaning the proceeds cannot buy more securities. A real estate purchase is generally an allowed use, but each lender sets its own collateral rules. Funds held inside retirement accounts are generally not eligible collateral, so confirm eligibility before you plan around them.

Holding funds as reserves. Lenders often verify reserves through statements, and many apply a haircut to market-value assets. Treatment varies by lender, so this is a program-by-program question.

How the DSCR Lender Treats a Borrowed Down Payment

A DSCR loan compares monthly rent to the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues. Divide rent by that total and you have the coverage number. Lendmire’s complete DSCR loans guide walks through the calculation in more detail.

Across the wholesale network, most DSCR purchases land at 75% to 80% LTV, which means 20% to 25% down. Select programs reach 85% LTV with roughly a 700 or better score. A coverage ratio of 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Your HELOC or SBLOC payment does not appear in that ratio. The property’s rent is measured only against the property’s own debt. That is useful, since the line does not drag the coverage number down. It is also a trap, because a file can clear 1.00 while your personal cash flow strains under a second payment. Clearing the ratio is not the same as positive cash flow, since repairs, vacancy, management, utilities, and capex all sit outside the calculation.

Whether a lender accepts borrowed funds as the down payment varies by lender and program. Lenders also differ on how they count a drawn line toward reserves. In general, drawn funds may be refused as reserves, and an undrawn line usually does not count. Reserves commonly run around 6 months of PITIA, depending on leverage, loan size, and transaction type. Ask for the program’s treatment of borrowed funds before you draw anything.

Picture the two tests as separate gates. The home equity line has to clear CLTV, credit, and DTI. The DSCR purchase has to clear leverage, credit, reserves, and coverage. A weak result at either gate stops the plan.

Where the General Rule Breaks

Several edge cases break the usual pattern.

• LLC-owned property. A home equity line can only be held by an individual or a revocable living trust. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot hold title. A rental already deeded to an LLC needs a vesting change, or a DSCR cash-out refinance instead, subject to lender program eligibility.
• Large lines. A line above $500,000 is primary-residence only. It needs a credit profile of 700 or better, or 720 on the longer-runway structure (the 5-year draw with 25-year repayment). It caps at 75% CLTV and requires a full appraisal. Investment lines never reach this size, since they cap at $500,000.
• Portfolio size. A borrower is limited to three lines, with a combined exposure ceiling that depends on the program. A borrower owning more than 15 financed properties is not eligible.
• Property type. Single-family, 2-4 unit, PUD, townhome, and condominium properties, including non-warrantable condos, are eligible. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural zoning are not offered. The network’s DSCR programs also do not offer manufactured homes, log homes, or barndominiums.
• Credit events. A bankruptcy needs 4 years of seasoning from discharge or dismissal. Foreclosure history splits by program on primary residences, with seasoning of 7 years for a foreclosure and 4 for a deed-in-lieu or short sale on one, and a flat decline on the other.
• Correlated downturns. A housing slump and a market drop can arrive together. Home equity shrinks while fund values fall, and the payment obligations on both lines stay in place.

Run the Stack Before You Draw

Consider an investor with a primary home carrying a first mortgage at 60% of its value. The investor has a 740 credit profile and wants a down payment of 20% on a rental. A primary-residence line can reach 90% CLTV at that score, which leaves room for a line of up to 30% of the home’s value. The line only has to cover the down payment and closing costs, so it uses a portion of that room. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Now change one input. If the same investor draws against an existing rental with a first lien at 50% of value, the investment ceiling of 70% CLTV leaves room for up to 20% of value. The line is also capped at $500,000 and runs on the 5-year draw structure. Smaller room, tighter credit, and a hard property-type screen all pull in the same direction.

The line payment is then measured by the lender’s DTI, using the interest-only payment on the full draw. At the same time, the DSCR purchase has to cover its own PITIA from rent. These are figures for you to run, not to assume. The calculator on this page gives an illustrative estimate of how the numbers interact, not a quote.

The cleaner paths are worth weighing against this stack. A DSCR cash-out refinance on an existing rental, which tops out around 75% LTV across most of the network with about 6 months of seasoning, avoids the second line. For that route, read Lendmire’s piece Banks That Offer a DSCR HELOC to Buy Investment Property Using Rental Equity. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Key Terms Defined

HELOC: A revolving credit line secured by real estate, with a draw period followed by a repayment period.

CLTV: Combined loan-to-value, which adds the first mortgage and the new line and divides by property value.

SBLOC: A securities-backed line of credit, secured by the investments in a brokerage account.

Maintenance call: A demand to add collateral or repay when the value of pledged securities falls.

DSCR: Debt service coverage ratio, which divides monthly rent by the property’s full monthly obligation.

Haircut: The share of an asset’s value that a lender refuses to count toward reserves.

Questions to Ask Any Lender

• Does the program secure the line with real estate only, or can it accept a securities pledge?
• Which occupancy types does it write, and what is the CLTV ceiling for each?
• Does it use an automated valuation or a full appraisal at my line size?
• How much of the line must be drawn at closing?
• Will a DSCR lender count the line as borrowed down-payment funds or as reserves?
• Can I use my current title, or does the vesting have to change?

Which Investor Fits Which Route

The right fit depends on your situation. An investor with strong primary-home equity and a 720 or better profile has the most room, because the 90% CLTV tier exists only at that score. An investor relying on an existing rental for the draw faces the 70% ceiling, the 700 floor, and the $500,000 line cap. An investor with large mutual fund holdings and little home equity might choose between selling and pledging, and the correlated-risk question belongs in that decision.

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. Reach the team at 828-256-2183, or request a quote.

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. NerdWallet – HELOC on an Investment Property

2. The White Coat Investor – HELOC on Investment Property

3. SEC Office of Investor Education – SBLOC Investor Alert

4. Investor.gov – Securities-Backed Lines of Credit alert