The Quick Read: The best program for your situation is the one whose repayment phase, occupancy rules, and leverage ceiling fit your property, because the five borrowing years matter less than what follows them, and a broker matches the file to the program. Across Lendmire’s wholesale network, the five-year structure pairs an interest-only draw with a 25-year fully amortizing repayment. Pricing floats the whole way and never converts to fixed.
- Structure: five years of interest-only borrowing, then 25 years of principal and interest. At least 75% of the line is drawn at closing.
- Leverage depends on occupancy: an investment-property line tops out at 70% CLTV (combined loan-to-value, meaning all liens against the property compared with its value). Primary residences and second homes reach 90% CLTV only with a 720-or-better credit profile.
- Qualifying is personal: these lines are underwritten on credit and debt-to-income, not on the property’s rent.
- Title matters: the individual borrower or a revocable living trust must hold title. An LLC cannot.
- Reach: the program is placed in 16 states, narrower than Lendmire’s DSCR footprint.
What a Five-Year Draw Actually Means
A five-year draw is a five-year window in which you can borrow against your equity. After it closes, you stop borrowing and start repaying principal. A HELOC (home equity line of credit) is a revolving line secured by the property. Think of it as a credit card backed by your house, with a hard stop date.
How large a line the equity supports.
An equity line is sized by combined loan-to-value, occupancy, and credit — not by rental coverage. Switch the occupancy or the credit band and the ceiling moves with it.
Investment-property lines require a 700 minimum credit score; second-home lines start at a 640 minimum and primary-residence lines at 600, and the combined-LTV ceiling steps down as the credit band drops on primary-residence and second-home lines and holds on investment-property lines; the line cap steps down on primary-residence lines and holds at every tier on investment-property and second-home lines.
A debt-to-income ratio above 45% requires 680+ credit. Profiles under 640 are limited to single-family homes. At least 75% of the approved line is drawn at closing. Ceilings, floors, and caps update from Lendmire’s centralized guideline source.
Line estimate
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. The rate is an editable assumption; equity-line pricing is variable through both the draw and repayment periods and never converts to fixed. Occupancy and credit drive the ceiling together: an investment property tops out at 70% combined LTV (minimum credit 700, line cap $500,000); a second home tops out at 90% combined LTV (minimum credit 640, line cap $500,000), with the ceiling stepping down as the credit band drops (the cap holds at every tier); a primary residence tops out at 90% combined LTV (minimum credit 600), and its $750,000 maximum line is available only at 75% combined LTV or below with a 700-or-better credit profile (720 on the longer-runway program) and a full appraisal. Lines above $500,000 require a full appraisal. Credit, debt-to-income, property type, and full underwriting review all affect the final line.
On the five-year-draw program in our network, the timeline looks like this:
| Phase | Length | Can you borrow? | Payment type |
|---|---|---|---|
| Draw | 5 years | Yes, in set minimums | Interest-only |
| Repayment | 25 years | No | Principal and interest |
| Total | 30 years | n/a | Pricing floats throughout |
The one exception is Tennessee, where the 5-year draw stays but the repayment phase is shortened to 10 years.
The network also has a three-year-draw program: a 3-year interest-only draw with a 17-year repayment. We compare the two below. For investment-property lines, only the five-year structure exists.
This is not a lump-sum loan. It is not a fixed-term loan either. It is a standalone line, sitting in first or second lien position, that starts mostly drawn and can be re-borrowed within its limit during the draw.
Key Terms Defined
Draw period: the stretch when you can borrow against the line and usually pay only interest.
Repayment period: the stretch after the draw when borrowing stops and principal is paid down on a schedule.
CLTV: all loans secured by the property, added together and divided by the property’s value.
Fully amortizing: each payment covers interest plus enough principal that the balance reaches zero at maturity.
Payment shock: the jump in the required payment when principal starts to be paid.
Vesting: the legal name under which title to the property is held.
DTI: debt-to-income, the share of your monthly income that goes to debt payments.
What Makes a Five-Year-Draw Program the Best Fit?
No single program wins for every borrower. The best fit depends on your property type, credit profile, how much leverage you need, and what you will do when year five arrives. A broker that shops several wholesale lenders can match your file to the program, which a single lender cannot do.
Judge any five-year-draw program on these criteria. Ask each one of whoever is quoting you:
| Criterion | Why it matters | What to ask |
|---|---|---|
| Repayment length | Sets the size of the step-up | How long is the amortization? |
| Balloon or amortizing | A balloon is a different product | Is any balance due at once? |
| Draw at closing | Drives interest from day one | What share is funded at closing? |
| Minimum later draw | Limits small, staged draws | What is the minimum after closing? |
| Occupancy and CLTV ceiling | Caps your usable equity | Which tier applies to this property? |
| Vesting rules | Can disqualify an LLC-held rental | Who can hold title? |
| Freeze rights | Undrawn money is not guaranteed | When can availability be suspended? |
Rates and fees matter too, but they are lender-specific and change often. Lendmire quotes them file by file, never in an article.
How Underwriting Treats a Line on Your Property
Underwriting a HELOC is personal, and that is the biggest difference from a DSCR loan. Here is how it runs on our network, step by step.
1. Credit. The program floor is a 600 score. A single-bureau score model is keyed to the primary wage earner. The report can be no more than 90 days old at closing, and rescores are not available. The five-year-draw program also wants two tradelines seasoned 12 months, or one seasoned 24 months.
2. Housing history. At 640 and above, expect 0x30 in the last 6 months and no more than 1×30 in the last 12. From 600 to 639, it is 0x30 in 12 months. This is applied across all financed properties.
3. DTI. The maximum is 50%. It drops to 45% for credit profiles from 600 to 679, and a ratio above 45% requires at least a 680 score. The payment is calculated on interest-only terms at the maximum draw, so you are qualified as if the line were fully used.
4. Valuation. Lines at or below $500,000 ordinarily run an automated valuation with no traditional appraisal. A higher CLTV may require a secondary valuation, and you may request a full appraisal in any case. Every line above $500,000 needs a full appraisal.
5. Derogatory history. A bankruptcy needs 4 years of seasoning from discharge or dismissal. Foreclosure-family history splits by program on primary residences and second homes. One program seasons a foreclosure at 7 years and a deed-in-lieu, pre-foreclosure, or short sale at 4. The other declines that history regardless of age. Investment files follow the 7-and-4-year path.
All of this is subject to lender guidelines and full file review.
Leverage and Line Size by Occupancy
Your occupancy type sets the ceiling. We never quote one number across the board, because the three tiers differ materially.
| Occupancy | Minimum credit | Top CLTV | Maximum line |
|---|---|---|---|
| Investment property | 700 | 70% | $500,000 |
| Second home | 640 | 90% (720+ only) | $500,000 |
| Primary residence | 600 | 90% (720+ only) | $500,000 at 90% CLTV; $750,000 at 75% CLTV, 700+ (720 on the five-year-draw program) |
Several details sit behind that table:
- On an investment property, 70% CLTV is the ceiling at both the 700 and 720 tiers. There is no higher tier.
- On a primary residence or second home, 90% CLTV exists only with a 720-or-better credit profile. Lower scores step down through 85%, 80%, 75%, and below.
- Lines run from $25,000 to $750,000 in general (Michigan’s floor is $10,000).
- A line above $500,000 is primary-residence only. It needs a credit profile of 700 or better (720 on the five-year-draw program), caps at 75% CLTV, and requires a full appraisal.
- Where the two wholesale programs differ, each figure applies only inside its own program’s terms. When someone quotes you a CLTV, ask which program it belongs to.
Eligible properties include single-family homes, 2-4 units (a 640 minimum applies on the five-year-draw program), PUDs, townhomes, and condominiums, including non-warrantable ones. Modular factory-built homes are eligible on the five-year-draw program only. Manufactured homes, co-ops, condotels, log homes, commercial and mixed-use properties, and agricultural zoning are not offered.
Five-Year Draw vs. a Shorter or Longer Draw
Five years is a middle setting. Experian says draw periods typically run five to 10 years, with the length set by the lender. So five is real and common. It is not the national default.
Inside our network, the real choice is between the two programs:
| Factor | Five-year draw | Three-year draw |
|---|---|---|
| Interest-only phase | 5 years | 3 years |
| Repayment phase | 25 years | 17 years |
| Combined exposure cap | $750,000 | $2,000,000 |
| Investment-property lines | Yes | No |
A few practical readings:
- Pick the five-year draw if your plan has a defined horizon, you want a gentler 25-year step-up afterward, or the property is an investment property.
- Pick the three-year draw if you need the higher-leverage path on a primary residence or second home and can absorb a shorter runway.
- Look elsewhere if your project timeline may run past year five. Lendmire’s piece on a HELOC with a 10-year interest-only draw period covers a longer structure.
How the Five Years Play Out
Run the numbers on a hypothetical investor holding a rental, using percentages of the line only. The figures below are illustrative, not a quote.
- Closing. At least 75% of the line is funded immediately, so interest starts on most of the line on day one. That is the first surprise. On these lines, you cannot leave the whole thing sitting idle.
- Year 1. The investor uses the funded portion as a down payment on a second rental. The remaining 25% or less stays available in draws of at least $1,000.
- Years 2-3. A renovation draws down the remainder. Rent from the newer property covers the interest-only carry.
- Year 4. The investor stops drawing and starts the exit math.
- Year 5. The investor pays the balance down, refinances it, or lets it roll into the 25-year repayment.
The catch is what comes next. Five years of interest-only carry are followed by a long repayment.
Payments During the Draw and After It
Draw-period payments are usually interest-only. The federal banking agencies’ guidance on lines nearing the end of their draw periods says that when repayment begins, principal is either due at once as a balloon or repaid over the remaining term through higher payments. It calls the result payment shock.
The CFPB confirms the pattern. Once the draw ends, you can no longer borrow, and payments are often significantly higher. Some plans make the whole balance due as soon as repayment begins. The five-year-draw program in our network amortizes over 25 years instead, which is a gentler step than a short repayment or a balloon.
Two cautions follow:
- Interest-only is not paydown. The balance on day 1,800 is the same as on day one, unless you chose to pay principal.
- Floating pricing stacks on top. The step-up at year five combines the new principal payment and wherever pricing has moved by then. Rent that covers the draw-phase payment does not prove it covers the repayment-phase payment. Stress-test the second one before you commit.
Lines can also be frozen. The same federal guidance notes that some lenders suspend availability before the draw ends when collateral value falls or a borrower runs into repayment problems. Treat undrawn credit as available, not as promised.
Where the General Rule Breaks
The 5/25 structure and the occupancy tiers cover most files. These edge cases do not follow them.
- LLC-held rentals. Title must sit with the individual borrower or an inter vivos revocable living trust. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot hold title on these lines, per lender program requirements. A property already deeded to an LLC needs a vesting change, or a DSCR cash-out instead.
- Texas primary residences. A homestead caps at 80% combined loan-to-value, so higher matrix tiers never apply. A 12-day waiting period, a one-lien-at-a-time rule, and 12-month seasoning also bind primary residences only. Second homes and investment properties are eligible as non-homestead transactions. Properties are limited to 10 acres, and the minimum subsequent draw is $4,000 instead of $1,000.
- Tennessee. The shorter phases differ by program. The three-year program becomes 3 years of draw and 12 years of repayment. The five-year program keeps its 5-year draw and shortens only the repayment to 10 years, a sharper step-up.
- New Mexico and Ohio. The CLTV cap depends on the credit profile.
- Recently listed properties. A property listed for sale, or listed within the past 60 days, is ineligible in Indiana, North Carolina, Pennsylvania, Tennessee, Texas, and Washington.
- Heavy portfolios. A borrower is limited to three lines, with combined exposure capped at $750,000 on the five-year-draw program. An owner of more than 15 financed properties is not eligible.
- Low scores. Sub-640 profiles are limited to single-family residences with a clean 12-month housing history under the five-year-draw program. Because second homes floor at 640 and investment lines at 700, this restriction reaches primary residences only.
- Sub-700 investors simply do not fit an investment-property line.
Your Year-Four and Year-Five Plan
A short draw forces an exit plan. Start it in year four, not year five.
1. Price the repayment. Ask for the post-draw payment structure and test it against your rental income.
2. Decide on paydown. Voluntary principal payments during the draw soften the step-up. Ask whether any early-payoff cost applies.
3. Check your equity. Order a fresh valuation view and recompute CLTV with the current balance.
4. Price the alternatives. A HELOC leaves the existing first mortgage in place. A cash-out refinance replaces it. The right answer depends on whether the first mortgage is worth keeping.
5. Act before a freeze can bite. A drop in value or a missed payment is the worst time to need a refinance.
A DSCR cash-out refinance is one exit investors use for a rental. DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. A DSCR file qualifies primarily on property-level rental income covering the payment, subject to lender guidelines, so your personal DTI is not the gate.
Typical DSCR cash-out guidance in our network tops out around 75% LTV on standard rentals (70% on short-term rentals), with about 6 months of seasoning as the common expectation. Coverage of 1.00 is where many select programs start, and a separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Clearing 1.00 is not the same as positive cash flow, since repairs, vacancy, management, and capex sit outside the calculation. Our complete DSCR loans guide walks through the full picture. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Frequently Asked Questions
What is the minimum draw after closing?
It is $1,000 on the five-year-draw program, except in Texas, where it is $4,000. At least 75% of the line must also be drawn at closing. That means your staging flexibility is limited to the remaining portion.
Can my LLC take out this line?
No. Title must be held by the individual borrower or an inter vivos revocable living trust. If the rental already sits in an LLC, you would need a vesting change before the line could work. The alternative is a DSCR cash-out, which is built for investor entities, subject to program terms.
Can the lender freeze my line?
Yes, in some circumstances. The federal interagency guidance describes lenders suspending availability when collateral value declines or a borrower has repayment problems. Plan as though undrawn credit might not be there.
Can I pay off the line early?
You can usually pay down principal during the draw. Whether any fee applies for closing the line early depends on the specific program, so ask for it in writing before you commit. Lendmire confirms this on each file.
How is a HELOC different from a DSCR loan?
A HELOC is underwritten on your credit, DTI, and equity, while a DSCR loan is sized mainly on the property’s rent. HELOCs also run variable, whereas DSCR loans are built around a 30-year fixed spine, with 40-year terms, interest-only periods, and ARMs available through select lenders.
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. Lendmire is a broker, not the lender, and works with select wholesale lenders in its network. Program availability for these lines covers 16 states, narrower than the 41-market DSCR footprint. Every figure is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) arranging home equity lines of credit — primary-residence, second-home and investment-property lines — through a wholesale lending network in its 16 full-service states. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
2. Federal Reserve / interagency guidance on HELOCs nearing the end of their draw periods
3. CFPB
This article is part of Lendmire’s HELOC & home equity loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Banks That Offer an Investment Property HELOC With Minimal Payments During the Draw Period · Banks That Offer an Investment Property HELOC With a W-2 Co-Borrower on the Loan · Banks That Offer an Investment Property HELOC for LLC-Held Rentals
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.