finances

Can I Buy Investment Property With A Home Equity Loan?

If you’re wondering if you can buy investment property with a home equity loan, the short answer is yes. However, it’s critical to consider all of your options before making the commitment.

Amanda HoeyReviewed by

Also known as a second mortgage, a home equity loan allows you to borrow a sum of cash against the value of your home. To determine the loan amount for which you are eligible, lenders will consider the remaining mortgage balance due on your home, as well as your overall creditworthiness. Once the funds become available, you can begin spending the money immediately. Read on to learn more about home equity loans and various alternative funding options that can help you acquire the cash you need.

Common Uses for Home Equity Loans

Homeowners take out home equity loans for a wide array of reasons and there are no rules that govern how you must spend the funds. Whether you’re saving for a vacation or need to pay off some medical bills, a home equity loan can help. Here are a few of the more popular home equity loan uses among homeowners today.

Home Renovation Projects

Many people choose to take out a home equity loan to pay for the upfront cost of home improvements, like installing a new roof or adding a bathroom.  Renovation projects will make your house a more attractive investment if and when you decide to put your home on the market. Home equity loan funds can also help you upgrade outdated equipment in your residence, like kitchen appliances, the AC system, or the water heater.

Contribute to Investments

Some homeowners choose to put home equity loan money toward other investments such as a retirement fund, stock portfolio, or the purchase of another property. If you own a business, you can use the money to open a new location or buy better equipment for the office space. Another option is to simply put the money into a savings account to accumulate interest, slowly helping you build a healthy nest egg.

Pay for Unforeseen Expenses

Another common reason people take out home equity loans is to acquire cash for emergency expenses, like vehicle repairs or medical bills. A home equity loan can also help you pay down debt from credit cards or student loans.

What are the Main Benefits of Getting a Home Equity Loan?

Securing a home equity loan offers several unique advantages to homeowners seeking a sizable influx of cash. If you’ve built up a considerable amount of untapped equity, this loan option may be right for you. Some of the many benefits to home equity loans include:

Low Interest, Long Term Lengths

Just like with a conventional mortgage, a home equity loan comes with a relatively low fixed interest rate. In addition, term lengths on a home equity loan can last up to 30 years, providing a broad window of time in which to pay off the principal of what you borrow. While payment amounts may fluctuate with personal loans or credit card debt, monthly payments on home equity loans remain consistent throughout the term duration.

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Home Equity

Potential Tax Deduction

New guidance put forward by the IRS in 2018 outlines exactly when the interest from a home equity loan can qualify for a tax deduction. In short, all proceeds from the loan must contribute to expenses related to improving your residence. However, it’s important to note that the property must be the same home used to secure the home equity loan and not another investment property.

Provides Access to a Sizable Sum of Cash

The biggest advantage to a home equity loan is that it provides you with a large lump sum of cash instead of a lesser amount paid out over an extended period. With more money available upfront, you can spend more on large-scale expenses that may otherwise be unaffordable. Best of all, you’re free to allocate the funds however you want.

Can I Buy Investment Property with a Home Equity Loan?

The funds from a home equity loan can go to virtually any project or investment you choose. However, it’s important to remember that home equity loans are secured by using your home as collateral. If at any time you default on the loan, the lender can foreclose on the property.

Home Equity Loan Alternatives

While home equity loans are valuable resources for many homeowners, you have other options available to you as well to provide some quick cash when you need it. Finding the right alternative to a home equity loan will depend on your financial situation and overarching goals. If you’re uncertain about taking out a home equity loan, here are some additional options to consider:

Personal Loan

You may want to think about exploring personal loans if you only need a small amount of money to cover short-term expenses. Personal loans are also useful for consolidating debt from multiple credit cards into a single monthly payment. Lenders will evaluate your credit history and debt-to-income ratio to determine loan eligibility.

Cash-Out Refinance

If you’re uncomfortable with taking out a second mortgage, you can also consider a cash-out refinance. This option allows you to pay off your current mortgage by taking out another mortgage at a higher amount. This way you'll get to keep the cash difference between the two mortgages without having to put your home up as collateral.

Apply for a Home Equity Line of Credit

Also called a HELOC, a home equity line of credit provides you with access to a credit line to use as you see fit. This option is ideal if you’d like to convert your home’s equity into a slush fund or emergency expense account. Home equity lines of credit usually come with variable interest rates and terms that last up to 10 years.

EasyKnock’s Sale-Leaseback Solutions

Another alternative to home equity loans to consider is a home sale-leaseback. This option allows you to sell your home for cash without moving out. Instead, you lease the home back from the lender.

EasyKnock’s programs make this process easy for you by offering up to 85% of your home’s overall value in cash upfront. After selling your home and pocketing the converted equity, you can choose to buy the house back later at any time. To learn more, visit us online. We’ll send you an offer if you qualify.

While home equity loans are useful resources for many homeowners, they may not be right for everyone. Take your time to explore all the options available to you before coming to a decision. If you need help, our friendly associates at EasyKnock are always happy to offer guidance. Call us today to speak with a member of our team and get answers to any questions you may have.

Amanda Hoey
Content Marketing Manager

Amanda Hoey, Content Marketing Manager for EasyKnock, has applied her experience in public relations and content development to help produce educational and informative content for the financial and real estate industry. She is committed to bringing awareness and knowledge to homeowners about EasyKnock’s home equity loan alternative.

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