The Quick Read: At closing, the title company pays off every recorded claim on the home from the sale price, usually in recording order, and you keep what is left: the HELOC is paid its drawn balance plus accrued interest, while the home equity investment, or HEI, is paid a settlement set by its contract formula. The HELOC claim is a fixed balance. The HEI claim moves with the sale price, so your net proceeds stay uncertain until an offer is in hand.
- Order of payment usually follows recording order, unless a subordination agreement changes it.
- The HELOC payoff is a balance. The HEI payoff is a formula result, so request both payoff statements before you accept an offer.
- On an investment property, the network’s HELOC ceiling is 70% CLTV, so an HEI already on title can leave little or no room for a line.
- A DSCR cash-out refinance pays off both junior claims at closing, which removes the consent question.
- A thin sale price hurts the junior-most holder first.
What a HELOC and an HEI Each Are
A HELOC is a home equity line of credit. It is a revolving line secured by a recorded lien, which is a legal claim on the property that must be cleared before a clean title passes to a buyer. You draw, you owe interest, and you repay.
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.
An HEI is a contract in which a company gives you cash today in exchange for a share of the home’s future value. You usually make no monthly payment. The company is owed its share when you sell or when the contract term ends.
Here is the catch for investors. Both products sit on the title, and both come due at the same closing table.
Across our wholesale network, an investment-property HELOC is a standalone line in first or second lien position. It reaches 70% CLTV, which means combined loan-to-value: every lien on the home added together and divided by its value. Lines run up to $500,000 with a 700 minimum credit profile, subject to lender guidelines. The structure is a 5-year interest-only draw followed by a 25-year repayment period. At least 75% of the line is drawn at closing.
That last detail matters at sale. Interest-only draws do not shrink the balance, so the HELOC payoff tends to track what was drawn plus accrued interest.
How the Two Obligations Differ on Sale Day
The HELOC is a debt with a balance. The HEI is a contract with a settlement. They both get paid from proceeds, but the payoff amounts are set in different ways.
| Factor | HELOC | HEI |
|---|---|---|
| Nature | Revolving loan | Equity-sharing contract |
| Payoff amount | Drawn balance plus interest | Contract formula on sale price |
| Changes with sale price? | No | Yes |
| After payoff | Lien release, line closed | Lien release, contract ends |
Read the third row twice. If your sale price drops, the HELOC claim does not. The HEI claim may fall, but contract features can limit how far.
The Closing-Day Waterfall, Step by Step
The settlement agent runs the same basic sequence on most sales. Individual contracts and state law can change the details.
1. Start with the sale price. Everything below comes out of this number.
2. Pay taxes and municipal liens. Unpaid property taxes and similar liens usually rank first.
3. Pay the first mortgage. If you have one, it is paid off from the sale proceeds next. A HELOC is second only when a first mortgage exists. On a free-and-clear property, the HELOC is the first lien, as Bills.com explains.
4. Pay the junior liens in recorded order. The HELOC and HEI come next. Whichever was recorded first generally ranks ahead.
5. Pay closing costs and commissions. These come out of the transaction.
6. Release the liens. Each paid holder records a release, which clears the title.
7. You receive the remainder.
The agent orders a payoff statement from each lienholder. The HELOC statement is a balance. The HEI statement is a settlement figure, not a loan balance, and it depends on the sale price.
Worked Example: Two Closings on the Same Home
This example uses illustrative points, not dollars. Treat the sale price as 100 points. These are modeled assumptions, not market data, and every HEI contract is different.
| Line item | Healthy sale | Tight sale |
|---|---|---|
| Sale price | 100 | 85 |
| First mortgage | 45 | 45 |
| HELOC (drawn balance) | 15 | 15 |
| HEI settlement | 25 | 18 |
| Closing costs | 7 | 6 |
| Seller nets | 8 | 1 |
In the healthy sale, 100 minus 45, 15, 25, and 7 leaves 8 points. In the tight sale, 85 minus 45, 15, 18, and 6 leaves 1 point.
Notice what happened. The sale price fell 15 points, but the mortgage and HELOC claims did not move. The HEI claim absorbed some of the drop. Yet the seller’s net nearly vanished.
Now suppose the HEI contract has a floor that keeps the settlement at 25. The tight sale then nets negative 6 points, and someone is short. That brings up the failure case.
Who Ranks First: Recording Order and Consent
Recording order sets rank. No federal rule ranks a HELOC against an HEI, so the outcome depends on which was recorded first, the contract terms, and whether each holder consents.
Here is how that plays out in the two possible sequences.
HEI first, HELOC second. The HELOC sits behind the HEI. A HELOC lender will want to see the HEI contract and may count the HEI claim against the room it has. Our network’s investment HELOC stops at 70% CLTV, so a large HEI claim can leave thin or no capacity. How a lender counts an HEI varies, so ask early.
The HEI holder may also have a say. One HEI-industry participant, answering on a BiggerPockets thread, says the provider’s underwriters review a junior lien case by case. They look at remaining equity and the line’s terms, and they want a conventional line with no balloon payment or equity-share feature. The post is old and covers one provider, so treat it as an illustration, not a rule.
HELOC first, HEI second. The HEI sits behind the HELOC. Some HEI providers may decline to sit behind an existing line, so confirm with the provider before you count on this route.
Two program details can change the picture for investors. First, an investment HELOC on our network must be titled in your individual name or an inter vivos revocable living trust. LLCs and several other entity types cannot hold title, subject to program terms. A property already in an LLC needs a vesting change or a DSCR cash-out instead. Second, HELOC availability runs through our 16 full-service states, which is narrower than the DSCR footprint.
Is an HEI Debt? It Matters Less Than You Think
Advertisements often say an HEI is not debt. For sale-day purposes, that framing does not help you much.
The CFPB’s issue spotlight on home equity contracts uses the term “home equity contracts” for these products. It notes that issuers often record a lien on the house. It also describes these contracts as expensive compared with other home-secured financing. And it points to features that can raise the settlement amount. For longer contracts, it says a rollover into a new contract may be allowed, but only if enough equity remains.
Whether an HEI legally counts as a loan is still contested. Law-firm commentary in Consumer Finance Monitor notes that the regulator took three non-binding steps: an advisory, the spotlight, and an amicus brief arguing these contracts are mortgage loans under federal lending law. The advisory and spotlight did not themselves decide that question. No federal rule has banned or reclassified HEIs.
The practical point is simple. If a lien is recorded, a title company will treat it as something to pay and release. The legal label does not change that.
Edge Cases Where the Usual Order Breaks
The general rule is recording order. Here is where it bends.
- Refinancing the first mortgage. A new first-lien lender will not accept a HELOC jumping into first position. The HELOC must be paid off or subordinated, meaning the HELOC lender agrees to step behind the new loan. The HELOC lender has no duty to do that, and many apply a CLTV test, as Bills.com reports. The HEI holder’s consent to stay in place is a separate request.
- A short sale. If proceeds do not cover every lien, each junior holder must agree to any shortfall deal. The senior holders are paid first, so whoever ranks later carries the loss risk.
- A zero-balance HELOC. The lien stays recorded until you request closure and a release is filed. An inactive line can still surface in a title search.
- A settlement bigger than expected. Contract features and disputes over home value can push the HEI figure up. Ask for the payoff statement early.
- Rental conversion. HEI contracts may restrict renting the home or taking on further borrowing, according to attorney commentary summarizing consumer-advocate research. Converting a home to a rental can put the contract in default, so read the contract before you list a tenant.
- State variation. Some states treat shared-appreciation agreements as mortgage loans under their own law. This article stays national, so check your state.
What If Proceeds Do Not Cover Everything?
Start with the payoff statements. They tell you the exact gap.
Then work through the options in order:
1. Raise the price or wait. The HEI claim may rise with the price, but the HELOC and mortgage claims do not, so a higher price still improves the gap.
2. Pay down the HELOC before listing. This cuts the fixed claim.
3. Ask the HEI holder about a payoff discussion. Do this in writing. Contract terms control what is possible.
4. Negotiate a short sale. Every junior holder must agree, and each one decides for itself.
A shortfall is a negotiation, not a formula. Having each holder’s payoff terms in writing before you sign a purchase contract keeps you from learning about a gap at the closing table.
Pre-Listing Checklist
- Request a payoff statement from the first mortgage servicer.
- Request a payoff statement from the HELOC lender, and ask whether the line will be frozen once a sale is pending.
- Request a settlement statement from the HEI holder, and ask how it changes with the sale price.
- Pull the HEI contract and read the sections on caps, floors, and rental use.
- Tell the title company about every recorded lien, including any inactive line.
- Plan the lien releases, and confirm each holder will record one after payoff.
- Run net proceeds at two or three sale prices before accepting an offer.
Also avoid double-counting. If you used a HELOC draw to pay down an HEI, or the reverse, the same dollars cannot be counted twice in your net proceeds.
Is a DSCR Cash-Out the Cleaner Exit?
For many investors planning to keep the property, the answer is often yes. A DSCR cash-out refinance can pay off the first mortgage, the HELOC, and the HEI in one closing. Because every junior lien is paid, no holder has to consent to stay in place. You still need the HEI settlement figure in hand, so request it early.
On our network, cash-out refinances top out around 75% LTV, with about six months of seasoning as the common expectation. Loan sizes reach up to $3,000,000 on standard programs, with smaller balances available through select lenders. Credit floors start at 620 in parts of the network. Most programs want around 660, and 700 or better unlocks the strongest leverage tiers. Reserves vary by lender and loan size, commonly around six months of PITIA, which is principal, interest, taxes, insurance, and any association dues. Everything here is subject to lender guidelines and full file review.
Coverage works differently from a HELOC. DSCR means debt service coverage ratio: monthly rent divided by PITIA. A coverage of 1.00 is where many select programs start. A separate select-lender path goes below 1.00, with leverage and terms adjusted. A ratio above 1.00 is not the same as positive cash flow, because repairs, vacancy, management, and capital expenses sit outside the calculation.
Large HEI claims also eat equity. A refinance has to leave enough equity after paying everything off, so run the leverage test before you apply. If you want the full picture of how these loans work, see the complete DSCR loans guide. For a side-by-side look at the two exits, Lendmire’s piece DSCR HELOC vs DSCR Cash-Out Refinance When a Home Equity Investment Is Owed at Sale covers the decision in detail. Lendmire’s piece Rental HELOC Requirements When a Home Equity Investment Is Owed at Sale covers the line itself.
Key Terms Defined
HELOC: A home equity line of credit, a revolving line secured by a lien on the property.
HEI: A home equity investment, a contract that gives you cash now for a share of the home’s future value.
Lien: A recorded legal claim on a property that must be paid or released before title passes cleanly.
Payoff statement: A written figure from a lienholder showing what it is owed on a given date.
CLTV: Combined loan-to-value, all liens on the home added together and divided by its value.
Subordination: An agreement in which a lienholder agrees to rank behind another lien.
Net proceeds: What the seller keeps after liens, costs, and commissions are paid.
Frequently Asked Questions
Can I sell a home that has both a HELOC and an HEI?
Yes. The title company pays off both from the sale proceeds and orders a release from each. The only question is whether the sale price covers everything owed. Get both payoff statements before you accept an offer.
Which one gets paid first, the HELOC or the HEI?
Usually whichever was recorded first, unless a subordination agreement changes the order. A first mortgage, if there is one, comes ahead of both. Contract terms and state law can alter this, so ask the title company to confirm the order.
Can I open a HELOC after taking an HEI?
Possibly, but the HEI holder may need to approve it. One industry participant says the provider reviews remaining equity and the line’s terms. On an investment property, our network’s ceiling is 70% CLTV, so a large HEI claim can leave little capacity.
What happens to my HELOC after the sale?
The line is paid off, closed, and released. It does not transfer to a new home. A zero balance alone does not remove the lien, so make sure a release is recorded.
Does the HEI settlement change if I sell for less?
Often yes, because it is a formula applied to the sale price. Some contracts include caps or floors that limit the movement, and the CFPB notes that certain features can raise the settlement. Ask for the payoff formula in writing and run it at several prices.
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 that arranges financing through select lenders in its wholesale network. HELOCs run through its 16 full-service states, and nothing here is a commitment to lend.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and real estate investors in its 16 full-service states open home equity lines of credit arranged through wholesale lenders. Lendmire is never the lender; line amounts, ceilings and terms are set by the lender under its guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Bills.com: Subordinating a HELOC for a refinance
2. BiggerPockets: HELOC on top of an equity-sharing agreement
3. CFPB Issue Spotlight: Home Equity Contracts
4. Consumer Finance Monitor: Home Equity Contracts, the CFPB Weighs In
5. Lawyers Realty Group: Shared appreciation loans
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: Best Investment Property HELOC Program for a Kitchen Remodel · Best Investment Property HELOC Program to Buy a New Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.