Home Equity Loans On Investment Property

The Quick Read: Yes, you can borrow against the equity in a rental, but fewer lenders offer it than you’d expect. Across the wholesale network Lendmire works with, an investment-property line tops out at 70% combined loan-to-value and $500,000. It also requires a 700 credit score and title in your own name or a revocable trust. If your rental sits in an LLC, or you want more than 70%, a DSCR cash-out refinance is usually the better road.

What Is a Home Equity Loan on a Rental, Really?

It is a loan secured by the rental you already own, based on the equity you’ve built. A home equity loan pays out one lump sum. A HELOC (home equity line of credit) lets you draw money as needed, up to a limit.

Both are less common on rentals than on a primary home. NerdWallet notes that these lines aren’t offered by all lenders. It describes the typical HELOC as a 10-year draw period followed by repayment of up to 20 years. That is the broad market. Your path depends on which lender you land with.

Our network’s investment-property line can sit in first or second position. Its draw period runs five years. Repayment then stretches 25 years. At least 75% of the line is drawn at closing, and pricing floats the whole way. It never converts to fixed. Treat that last point as a real planning issue, not fine print.

Key Terms Defined

• Combined loan-to-value (CLTV): Your first mortgage balance plus the new line, divided by the property’s value.
• Second lien: A loan that sits behind your first mortgage and gets paid second if the property is sold or foreclosed.
• Draw period: The stretch of years when you can pull money from the line and typically pay interest only.
• Debt-to-income ratio (DTI): Your monthly debt payments divided by your monthly income.
• DSCR (debt service coverage ratio): The property’s monthly rent divided by its full monthly payment, covering principal, interest, taxes, insurance, and any HOA dues.
• Vesting: The name or entity that legally holds title to the property.

How Underwriting Treats It, Step by Step

Step 1: The lender measures your equity. Add the first mortgage to the new line and divide by value. On an investment line in our network, that total can reach 70% CLTV. Say your first mortgage already equals 40% of the property’s value. You’d have roughly 30% of value left to borrow against. Run this before you apply, because a heavily leveraged rental may have nothing to tap.

Step 2: The lender values the property. Lines at or below $500,000 ordinarily use automated valuation, not a traditional appraisal. Since investment lines cap at $500,000, that is the normal lane. A higher CLTV may call for a secondary valuation, and you can request a full appraisal anyway.

Step 3: The lender checks the borrower. This is the big difference from a DSCR loan. The line uses a 700 minimum credit score on investment property. Credit above 700 doesn’t buy more leverage, since 700 and 720 both reach the same 70% ceiling. DTI tops out at 50%, calculated on the interest-only payment at the maximum draw. Expect to document your income.

Step 4: The lender confirms title. Title must sit with you personally or in an inter vivos revocable living trust. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts can’t hold title. If the property is already deeded to an LLC, you need a vesting change or a different product.

Step 5: The lender screens the property. Eligible types include single-family, 2-4 units, PUDs, townhomes, and condos, including non-warrantable ones. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural-zoned properties are not eligible.

Step 6: The lender checks your footprint. You’re limited to three lines. Anyone owning more than 15 financed properties is not eligible. All of this is subject to lender guidelines and full file review.

Why Investors Choose This Route

Investors tap equity for down payments on the next deal, renovations, or paying off higher-cost debt. The strongest case for a second lien is protecting an existing first mortgage you like. You leave it alone and add a line behind it.

The weakness is leverage and cost of capital. A line can float and a first-lien refinance may not.

Side by Side: Your Real Options

*Subject to lender program eligibility.

On the DSCR side, cash-out tops out around 75% LTV on standard rentals across most of the network, and 70% on short-term-rental collateral. Most programs expect about six months of ownership first. Credit minimums usually run near 660, with a 620 floor in parts of the network.

Coverage is where it gets interesting. A 1.00 ratio is where select programs start, and a stronger ratio generally helps leverage and pricing. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. For the full picture of how these loans work, see Lendmire’s complete DSCR loans guide.

One caution. Clearing 1.00 does not mean the property cash flows. Repairs, vacancy, management, and utilities sit outside the calculation.

Where the General Rule Breaks

The LLC problem. The rule says equity lines need personal or trust title. Plenty of investors hold rentals in LLCs for liability reasons. A DSCR cash-out is the usual workaround, since entity ownership is more common there, subject to program terms.

The existing-first-mortgage problem. A DSCR loan generally can’t slot in behind another loan, so second-lien DSCR options are limited. Most investors wanting property-rent-based lender review end up replacing the first lien instead.

The property-type problem. Mixed-use buildings, log homes, and manufactured homes are out on the equity line. They’re also not offered on the DSCR side.

The state problem. Lendmire arranges these equity lines in 16 full-service states only. That is narrower than its DSCR reach of 41 markets, including Washington, D.C. In several states, a property listed for sale, or listed within the past 60 days, is ineligible.

The “just listed” problem. Same idea. If you’re planning to sell soon, ask before applying.

The portfolio problem. Equity lines count against your DTI when you qualify for the next purchase. A DSCR loan doesn’t use DTI. That makes a big difference if you plan to keep buying.

The shrinking-value problem. A line isn’t guaranteed to stay open. The Federal Reserve’s Consumer Compliance Outlook explains that creditors may freeze or reduce a home equity line when the property’s value falls significantly. That is an older source, but the logic still holds for a floating line.

The Business-Purpose Wrinkle

Equity loans on rentals 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. The CFPB’s Truth in Lending summary treats credit to acquire or improve a non-owner-occupied rental as business-purpose credit. Keep the paperwork clean.

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.

Second Lien or Refinance? How the Decision Plays Out

Honestly, it is a close call in many files. Three questions settle it.

1. How good is your first mortgage? If you’d be giving up a first loan with unusually favorable terms, a second lien deserves a hard look. If not, a refinance simplifies your life.

2. How do you want to qualify? Prefer to lean on personal income and credit? The line fits. Prefer to lean on the property’s rent? DSCR fits.

3. Where does title sit? An LLC settles it for you. DSCR cash-out wins by default.

Picture an investor with a triplex in a revocable trust, a 40% balance on the first mortgage, and a 740 score. The line works. Now picture the same triplex owned by an LLC. The line is off the table, and the conversation shifts to cash-out, where the question becomes whether rent covers the new payment.

Across the lenders we place files with, the common mistake is picking the product before checking title and existing leverage. The strongest files clear two tests: enough equity and enough rental coverage. Fix those first.

If you’re weighing how equity can fund your next purchase, using home equity to buy investment property covers that angle. For a look at the types of lenders that offer these products, see the guide “Who Does Home Equity Loans on Investment Property”.

Next Step

If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a broker, not a lender, and every option is subject to lender guidelines and full file review.

About Lendmire

Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender on the property’s rental income rather than personal income documentation, subject to lender guidelines — which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. NerdWallet: Can You Get a HELOC on an Investment Property?

2. Federal Reserve: Consumer Compliance Outlook

3. CFPB: Truth in Lending Act summary