Home Equity Loans on Investment Properties: Everything You Need to Know

 Home equity loans are a popular way to access the equity you have built in your home. But did you know that you can also use a home equity loan on an investment property? This can be a smart way to finance renovations, repairs, or even the purchase of a new investment property.

In this blog, we will discuss the pros and cons of home equity loans. We will also delve into how to plan carefully before investing in a home equity loan.

What is a Home Equity Loan?

A home equity loan is a type of loan that allows you to borrow money against the equity you have in your home. The amount you can borrow is typically based on the value of your home and the amount you owe on your mortgage.

How does a Home Equity Loan Work on an Investment Property?

The process of getting home equity on an investment property is similar to getting one for your primary residence. 

“According to Bank of America, lenders base their loan-to-value ratio (LTV) on your home equity. If your LTV is greater than 80% on a first lien, you may need private mortgage insurance (PMI). However, this usually does not apply to second liens like home equity lines of credit.”

There are a few things to remember, though.

• You will need to have enough equity in your investment property. Lenders typically require that you have at least 20% equity in the property.

• You must have a high credit score. Lenders will want to see that you are a responsible borrower.

• You will need to have a stable income. Lenders will want to know that you can afford to make the monthly payments on the loan.

What are the Benefits of Using a Home Equity Loan on an Investment Property?

Let’s check out some of the benefits:

• Flexibility:

You can use the funds for any purpose. This means you can use the money to make repairs, renovate the property, or even purchase a new investment property.

• Potential lower interest rates:

Compared to other loan forms, the interest rates are usually lower. This can save you money over the life of the loan.

• Tax advantage:

The interest may be tax-deductible. This can save you even more money.

• Building equity:

It can help you build equity in your investment property. By using the funds to make improvements to the property, you can increase its value.

“The average rates for home equity loans increased very little from 8.47% for 10-year loans and 8.38% for 15-year loans to 8.57% and 8.52%, respectively, as per CBS News report 2025.”

What are the Risks of Using a Home Equity Loan on an Investment Property?

It’s essential to understand the potential risks along with the advantages. It’s important to be aware.

• Foreclosure Risk:

 If you are unable to make the monthly payments on the loan, you could lose your investment property to foreclosure.

• Variable interest rate risk: 

If you have a variable-interest rate loan, the interest rates could increase, inequitably making your monthly payments more expensive.

• Over-borrowing: 

If you are not careful, you could end up owing more money than you borrowed.

How Do You Get a Home Equity Loan on an Investment Property?

Getting home equity loans requires careful planning.

• Shop around and compare: 

Be sure to compare interest rates from different lenders as they vary between lenders.

• Get pre-approved: 

This will give you an idea of how much you can borrow and strengthen your position when negotiating.

• Assess the affordability:

Ensure you can comfortably handle the monthly payments, considering potential interest rate fluctuations.

• Understand the terms: 

Understand the terms and conditions and go through all the loan documentation thoroughly.

Choosing the Right Lender is the Key

A home equity can be a great way to finance your investment property goals. However, the lender you choose can significantly impact your experience. A smooth, efficient process and competitive rates are essential.

Eroica Financial Services: Your investment partner

For a seamless and personalized experience with your investment property home equity loan, consider Eroica Financial Services. Their expertise in the local market, commitment to customers, and access to a wide range of loan products can help you find the perfect financing solutions for your investment goals. 

Contact Eroica Financial Services today to explore your options and take the next step in your real estate journey.

COMPANY NAME: Eroica Financial Services

WEBSITE: https://dfwbesthomeloans.com/ 

EMAIL: keith@eroicainc.com 

PHONE: +1-9722648465

ADDERSS: 524 Goodwin St. Grand Prairie, TX 75052