Home equity loan on an investment property: A guide

If you’re a real estate investor looking to fund capital improvements or a down payment on your next purchase, a home equity investment loan (also called a home equity loan¹ on an investment property) can unlock cash from the equity you've already built. Below, we'll explain how it works, the typical requirements, the pros and cons, and how to decide whether this move fits your strategy.

How do home equity loans work?

A home equity loan on an investment property is a second mortgage that allows you to borrow a lump sum using its equity as collateral. You repay the loan with predictable monthly payments at a fixed interest rate over a set repayment term, which often ranges from 5 - 30 years.

Rocket Mortgage has a home equity calculator you can use to estimate how much you can borrow.

While a home equity loan can provide the financing you need, it is important to ensure your rental income or other cash flow can comfortably cover the new payment. Since you use the investment property as collateral, defaulting on your home equity loan could lead to foreclosure.

Why get a home equity loan on an investment property?

Real estate investors often borrow their equity to finance new projects and expand their portfolios. Because you receive the loan funds as a lump sum, you have the flexibility to use the money from a home equity loan where your business needs it most.

Here are a few common reasons investment property owners choose this route:

• To pay for renovations and remodeling that attract tenants and justify higher rent.
• To make a down payment on another investment property.
• To build an emergency cash reserve to handle unexpected vacancies or repairs.
• To consolidate high-interest debt, like credit card balances or personal loans, into a single payment.
• To pay for improvements that increase the long-term value of the real estate.

Home equity loan requirements for investment properties

Lenders typically have stricter criteria for home equity loans on investment properties than they do for primary residences.

Investment properties carry a higher risk of default because borrowers experiencing financial hardship are more likely to prioritize payments on their primary residence. As a result, lenders put extra safeguards in place to ensure you can safely manage the second monthly payment.

Exact eligibility criteria vary by lender, but here are some general requirements you'll likely need to meet.

Credit score

You will generally need a higher minimum credit score for an investment property loan than you would for a standard mortgage.

For example, Rocket Mortgage requires a minimum credit score of 680 for a Home Equity Loan. However, many lenders require a credit score of at least 700 to get a home equity loan on an investment property.

Keep in mind that a higher score not only improves your chances of approval, it also can help you secure a lower interest rate, improving the overall return on your investment.

LTV and equity

Your LTV compares your total mortgage debt to your property's appraised value.

To calculate your LTV, divide your current mortgage balance by your property's value. If your investment property is worth $400,000 and you owe $200,000, your LTV is 50%.

Lenders set a maximum LTV for the combined total of your primary mortgage and your home equity loan. Because of the added risk, this limit is usually lower than that for a primary residence.

Rocket Mortgage will evaluate your combined LTV limit based on your credit score and your property's details, typically allowing up to 80% or 90%.

The number of units the property has also can affect your maximum LTV.

Additionally, lenders require a minimum amount of equity to borrow against. To qualify with Rocket Mortgage, you must have at least $45,000 in available home equity.

DTI

Your DTI shows lenders how much of your monthly income goes toward paying your monthly debts. This metric is important for both you and your lender because it ensures you are not taking on more debt than you can handle.

You can calculate your DTI by adding up all your monthly debt payments and dividing by your gross monthly income. For instance, if you earn $8,000 a month and have $3,200 in monthly debt payments, your DTI is 40%.

For a home equity loan, lenders will set a maximum debt-to-income ratio. Rocket Mortgage has a maximum DTI of 50%. If your DTI is high but you can show you have consistent rental income, it can help offset your debts and improve your ratio, making it easier to qualify.

Cash reserves

Unlike a home equity loan on a primary residence, lenders might ask to see cash reserves when you borrow against an investment property. Cash reserves are liquid funds you have in the bank that can cover your mortgage payments if the rental property sits vacant or requires unexpected repairs.

Rocket Mortgage typically requires anywhere from 6 - 18 months of cash reserves for an investment property.

Other potential requirements

Here are some additional financial metrics that lenders often require.

• Positive cash flow: Lenders want to see the property earn enough rental income to cover the mortgage payment and standard maintenance costs.
• Occupancy and tenancies: Proof of long-term tenancies and high occupancy rates show the lender that the property is a stable, reliable source of income.
• Property type: Single-family rental homes may have more lenient underwriting requirements compared to multiunit properties.
• Recent appraisals: An appraisal will be required to confirm your property's fair market value and the amount of equity you have.
• Debt service coverage: Lenders may calculate your debt service to ensure the property's income comfortably covers its ongoing debt obligations.

Pros and cons of home equity loans on investment properties

Be sure to consider the pros and cons of a home equity loan before making a decision.

Pros

Some of the benefits of using a home equity loan with an investment property include:

• Access to a lump sum. You get the full amount at once, making it easier to pay contractors for large projects or make a down payment on a new property.
• Predictable monthly payments. With a fixed interest rate, your monthly payment will remain the same for the life of the loan.
• Leverage of an existing asset without selling. You can turn your property's home equity into cash while still holding onto the property, building long-term wealth, and collecting rent.
• Flexible uses. You can use the funds for major improvements that could boost your return on your rental property in the future.
• Potentially lower interest rates. Because the loan is secured by your property, the interest rates are typically much lower than unsecured options like personal loans or business credit cards.
• Potential tax advantages. If you use the funds to substantially improve the property, you might qualify for certain tax benefits of real estate investing.

Cons

It’s important to also consider the potential risks and downsides of home equity loans, including:

• More challenging requirements. Expect stricter credit, equity, and DTI criteria than you would face for a standard primary residence.
• There are potentially fewer lender options. Not all lenders offer second mortgages on rental properties, so you may have to shop around more to find the right fit.
• Risk of foreclosure. Because your property is collateral, falling behind on payments puts you at risk of losing your home due to foreclosure.
• Potential negative equity. If the housing market cools and property values drop, you could end up with negative equity, where you owe more than the home is actually worth.
• Additional monthly payment. You will need to budget carefully for a second mortgage payment on top of your primary mortgage and routine operating expenses.
• Closing costs and fees. Just like a primary mortgage, you will have to pay home equity loan closing costs, which typically range from 3% – 6% of the total loan amount.

Should you get a home equity loan on your investment property?

To decide if a home equity loan is the right move for you, carefully review your goals, finances, and risk tolerance. You should consider exactly how you plan to use the loan, whether you meet the eligibility requirements, the current interest rate environment, and – perhaps most importantly – your ability to afford a second monthly mortgage payment on your investment property.

For example, taking out a home equity loan can be a wise financial move if you want to upgrade your rental property's bathrooms and kitchen. These improvements can directly increase your property's value, allowing you to charge higher rent and ultimately offset the loan's cost, boosting your profit.

On the other hand, if you are struggling with high vacancy rates and want to use the loan to cover your ongoing operating expenses, adding another monthly debt payment could place you under too much financial strain.

How to get an investment property home equity loan

If you have decided that a home equity loan is the right step for your investment property, you will find that the process is very similar to getting your first mortgage. Here are the typical steps to follow:

1. Calculate your equity and verify eligibility. Determine how much of a home equity loan you can get by estimating your property's current value and subtracting your remaining mortgage balance.
2. Gather required documentation. Collect your recent tax returns, bank statements, proof of rental income, and details about your current primary mortgage.
3. Shop around. Take the time to choose a mortgage lender – such as Rocket Mortgage – that offers home equity loans on investment properties and compare their rates and terms.
4. Apply for a home equity loan. Submit your formal application and authorize a hard credit check.
5. Complete the requirements. The lender will order an appraisal to verify your property's market value and finalize the underwriting process.
6. Close on the loan. Sign your closing documents, pay any associated closing costs or fees, and receive your lump sum disbursement to put toward your goals.

Alternatives to home equity loans on investment properties

If a home equity loan doesn't feel like a perfect fit, you still have several alternative financing options to explore to fund your real estate ambitions.

• Home equity loan on a primary residence: If you have substantial equity in your own home, you might find it easier to qualify for a loan against your primary residence to fund your investment goals. However, that also would increase the risk of losing your primary home.
• Home equity line of credit: A home equity line of credit (HELOC) works like a credit card, allowing you to draw funds as needed instead of taking a lump sum. Rocket Mortgage does not currently offer HELOCs.
• Cash-out refinance: A cash-out refinance² replaces your existing mortgage with a new, larger one, and you withdraw the difference in cash. This is a great option if you can secure a lower interest rate on your primary mortgage balance.
• Business loan: If your real estate investments are officially structured as a business, you might qualify for a commercial business loan to fund expansions or repairs.
• Unsecured personal loan: Personal loans usually have higher interest rates but do not require you to put your property up as collateral, reducing your risk.

FAQ

Still have questions about tapping into the equity of your rental properties? Here are the answers to a few frequently asked questions real estate investors often have.

How long does it take to get a home equity loan on an investment property?

It can take anywhere from 2 - 6 weeks to get a home equity loan. The timeline can vary based on your lender and how quickly an appraisal can be scheduled.

Can I buy another investment property with a home equity loan?

Yes, real estate investors often use a home equity loan to buy another house. The lump sum you receive can serve as a down payment on a new rental property, helping you expand your portfolio faster.

Can I deduct the interest on my investment property’s home equity loan?

In many cases, the interest you pay on your home equity loan is tax-deductible if you use the funds to buy, build, or substantially improve the property that secures the loan. Always consult with a licensed tax professional to understand exactly how current tax laws apply to your specific situation.

How can real estate investors get better home equity loan rates?

To secure the best mortgage rate, investors should focus on boosting their credit score, paying down existing debt to lower their maximum debt-to-income ratio, and building a healthy cash reserve. Shopping around and comparing offers from multiple lenders can also help you find the most competitive rate available.

The bottom line: A home equity loan on your investment property might be right for you

A home equity loan on an investment property can be a powerful tool for real estate investors who want to comfortably access the built-in value of their property. Whether you are financing renovations or saving for a down payment on your next rental home, this option provides a reliable lump sum with predictable monthly payments.

Are you ready to leverage the equity in your property? Take the next step and apply today for a Home Equity Loan with Rocket Mortgage.

¹ Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher‑priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

² Refinancing may increase finance charges over the life of the loan.