Can You Have 2 HELOCs on the Same Property?

When your home increases in value, you’re sitting on paper gains that may seem difficult to access. Unless you sell your home, you’re not going to benefit from the equity value of the home, unless you take out a home equity line of credit (HELOC). 

What happens if you already have a HELOC on your property? Can you have 2 HELOCs on the same property? Technically it’s possible, but you’ll have a few factors to keep in mind. 

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Understanding How It’s Possible to Have Two HELOCs on the Same Property

The good news is that no legal limits exist on the number of home equity loans you can have at any one time, including HELOCs. As long as you have enough equity in your home and you meet the lender’s eligibility criteria, you could consider this move. You do not have to stick with the same lender that offered you the first HELOC. 

As with your first HELOC, you need to complete an application and qualify for the line of credit. Since the lender may see a second HELOC as a greater risk, it helps to have a high credit score. Another HELOC may have higher interest rates.  

Pros and Cons of Multiple HELOCs on the Same House

Having more than one HELOC on the same property has pros and cons.

Pros 

• Greater flexibility: Depending on the lender and the specific HELOC product, it may be possible to use the funds for a wider variety of purposes. This factor is often an advantage when considering HELOC vs. home equity loans.
• Access better terms: Shop around and take advantage of different terms and rates offered by other lenders. You can choose which HELOC to draw down funds as you need them. 

Cons

• Increased overall debt: Having multiple HELOCs will increase your overall debt, potentially adding strain to your finances. 
• Higher fees: HELOCs have associated fees, so with more than one, you could end up doubling up on annual fees, inactivity fees and more. 
• Tracking multiple accounts: Another HELOC means another account to track and repay.

Factors to Consider Before Taking Out a Second HELOC

Before you start shopping for a second HELOC, consider these factors.

Amount of Equity on Your Property 

One of the most important factors determining your HELOC terms is the equity remaining in your home. Most lenders require that you have at least 20% equity in your home to qualify, but this can vary according to the lender. Some will offer a HELOC if you have 15%.

You will need sufficient equity to qualify for an additional HELOC. 

For example, if your home has a value of $500,000 and your current mortgage balance is $350,000, you have 30% equity. However, if you currently hold a HELOC for $100,000, your available home equity is down to 10%, and you would struggle to qualify for a second HELOC. 

On the other hand, in the above scenario, if your current HELOC is $50,000, your available equity is 20% and you may qualify for another HELOC. 

Credit Score 

Potential lenders will review your credit score to determine the potential risk. For HELOC approval, you will typically need a credit score of at least 650, but some lenders require higher scores. Your credit score will influence the rate the lender offers. If you have a higher credit score, you should be able to access lower rates. 

Your Loan-to-Value (LTV) Ratio

Your loan-to-value (LTV) ratio is a percentage of the home’s market or appraisal value that you can borrow against. Lenders tend to have limits on the combined LTV ratios for HELOCs, particularly when considering multiple HELOCs. Lenders will not allow you to borrow against the full equity value of your home, as any downturns in the market could leave you in a precarious financial situation. 

Interest Rate on a New HELOC

Although HELOCs typically have a lower interest rate compared to personal loans, credit cards and other unsecured borrowing, they also have a reasonably long term. Over a longer term, you may end up paying more interest over the lifetime of the loan. 

Total Value of the Two HELOCs 

Consider whether you can comfortably manage the repayments and if holding multiple accounts is compatible with your long-term financial goals. You may need to ask yourself whether the additional debt will help you to reach your objectives or if it has the potential to hinder the progress towards your financial goals. 

How to Get a Second HELOC on the Same Property

If you’ve decided that a second HELOC is a good option for you, here are the steps to get one.

Shop Around and Compare Offers From Different Lenders 

Your first step should be to check with your current lender to see if they accept applications for second HELOCs on the same property. A quote from your current lender can also provide you with a good basis for comparison shopping. Consult with other lenders to check what terms, interest rates and fees apply. 

Gather Necessary Documentation 

Once you decide on a lender, you need to complete an application. Some banks or credit unions may require a branch visit, but others permit online applications. In either case, you need to provide supporting documentation. This includes proof of income such as bank statements, paystubs or W2s.  

Apply for the Second HELOC

If you already hold a mortgage or HELOC on your property, the application form for a second HELOC should look quite familiar. You will need to provide your personal and financial information. 

As part of the application process, the lender will check your credit score and arrange a property assessment. The lender will need to know the current value of your home, and you will usually need to pay the appraisal fee. 

Close on the New HELOC and Start Using the Funds

Once the appraisal is complete, your lender will notify you with an approval decision. The lender will also provide you with final details including your interest rate and credit line. At this stage, you can decide if you want to proceed, in which case you need to sign the loan documents. 

The lender will then process your loan application and provide details of the closing date. After the loan closes, you receive access to your HELOC and you can start to make withdrawals for almost any purpose.

How Does a Second HELOC Repayment Work? 

HELOCs have a draw period when you can make withdrawals from the credit line as you need them. You start to make monthly interest payments as soon as you withdraw funds. 

You can use the HELOC funds for any purpose, like medical bills, home improvements or repaying your original HELOC. 

After the draw period ends, your repayments will also include a sum to cover the principal amount, so the total amount you borrow is repaid by the end of the agreed term. 

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More Funds with a Second HELOC 

Everyone has a unique financial situation, so you need to consider whether having two HELOCs on the same property is a good idea for you. Having multiple HELOCs has the advantage of being able to draw additional funds, but it also has drawbacks, including putting yourself into greater debt. So the answer to can you have 2 HELOCs on the same property? is yes, but it may or may not be the right choice for you. 

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