It’s possible to have two home equity lines of credit (HELOCs) on one property, but doing so may increase debt and may not be the best choice for everyone.
Homeowners often turn to home equity lines of credit, or HELOCs, to tap into their property’s equity for much-needed cash. But what happens if that first credit line isn’t enough or you find yourself needing more money? Can you have two HELOCs on the same property?
While there’s no law against it, taking out a second HELOC on the same home could result in higher interest rates, and you might be less likely to be approved the second time around.
Here, we’ll go over what that process looks like and what alternatives homeowners should consider.
What is a HELOC?
A HELOC, or home equity line of credit, is a financial product that allows homeowners to tap into the equity they’ve built in their house in exchange for a revolving line of credit that can be withdrawn from as needed. Equity is the difference between your home’s value minus the remaining mortgage balance.
There are two stages to a HELOC: the draw and repayment periods. The HELOC draw period is the time in which you can take money out of the credit line and use the funds to make renovations, pay unexpected expenses, or even put a down payment on a second house. You’ll have to make minimum payments on any withdrawn money during this time.
The draw period typically lasts 10 years and is followed by the repayment period, when the borrower must repay the principal plus interest. Most HELOCs have variable interest rates, meaning your payments could fluctuate.
The loan is secured by your house, meaning non-payment could result in foreclosure.
Two HELOCs on the Same Property
The good news is there are no legal limits on the number of HELOCs or home equity loans you can have on a property. As long as you have enough equity in your home and you meet the lender’s HELOC requirements, you could consider this move. You don’t have to stick with the same lender that offered you the first HELOC.
The bad news is that it’s probably not the best idea and should only be done as a last resort. “Having multiple HELOCs can create unnecessary complexity and potential risks for homeowners,” says Reed Letson, owner of Elevation Mortgage.
A lien is placed on the property whenever your home is used as collateral for a loan, like with HELOCs or mortgages. A lien is a claim on the home that stays there until a debt is repaid.
“The first HELOC will have a second lien position (after your primary mortgage), while additional HELOCs would take third or fourth positions,” Letson explains. “Lenders are typically hesitant to approve HELOCs in lower lien positions due to increased risk, and if they do, they’ll likely charge significantly higher interest rates.”
Additionally, each HELOC is secured by your home, so missing payments on any of them could result in foreclosure.
So, what do you do if you need extra cash? Letson recommends either increasing the credit limit of your existing HELOC through refinancing or getting a cash-out refinance on your primary mortgage.
“These alternatives are generally more cost-effective and easier to manage than juggling multiple HELOCs,” he says. “The goal is to maintain a clear, manageable financial strategy while accessing your home’s equity.”
Pros of Multiple HELOCs on the Same House
- Greater flexibility: Depending on the lender and the specific HELOC product, the funds may be used for a wider variety of purposes. This factor is often an advantage when considering HELOCs vs. home equity loans.
- Access better terms: Shop around and take advantage of other lenders' different terms and rates. You can choose which HELOC to draw down funds from as you need them.
Cons of Multiple HELOCs on the Same House
- Increased overall debt: Multiple HELOCs will increase your overall debt and potentially strain your finances.
- Higher fees: HELOCs have associated fees, so with more than one, you could double up on annual fees, inactivity fees and more.
- Tracking multiple accounts: Another HELOC means another account to track and repay.
What to Consider About Two HELOCs on the Same Property
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 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 as little as 15%.
You will need sufficient equity to qualify for an additional HELOC.
For example, if your home is valued at $500,000 and your current mortgage balance is $350,000, you have 30% equity in your home. However, if you already hold a HELOC for $100,000, your available home equity drops to 10%, making it difficult 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 HELOC lenders will review your credit score to determine the potential risk. You’ll typically need a credit score of at least 620 for HELOC approval, but some lenders require higher scores. Your credit score will influence the rate the lender offers. You should be able to access lower rates if you have a higher credit score.
RELATED: Does using a HELOC affect credit score?
Your Loan-to-Value (LTV) Ratio
Your loan-to-value (LTV) ratio is the percentage of your home’s market or appraised 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 put you in a precarious financial situation.
Interest Rate on a New HELOC
Although HELOCs typically have a lower interest rate than personal loans, credit cards and other unsecured borrowing, they also have a reasonably long term. Over a longer term, you may pay more interest over the loan's lifetime.
Total Value of the Two HELOCs
Consider whether you can comfortably manage the repayments and if holding multiple accounts aligns with your long-term financial goals. You may need to ask yourself whether the additional debt will help you reach your objectives or hinder your progress toward your financial goals.
The Bottom Line
- While you can have two HELOCs on the same property, most bankers recommend other strategies.
- Each HELOC results in another lien placed on your home.
- You’ll need sufficient equity in your home to take out multiple HELOCs.
- Consider a cash-out refinance or increasing your first HELOC’s credit limit.
Why You Should Trust Us
Benzinga has offered investment and mortgage advice to more than one million people. Our experts include financial professionals and homeowners, such as Anthony O’Reilly, the writer of this piece. Anthony is a former journalist who has won awards for his coverage of the New York City economy. He has navigated tricky real estate markets in New York, Northern Virginia and North Carolina.
For this story, we worked with Reed Letson, the owner of Elevation Mortgage, a mortgage lender in Colorado and Florida.
Frequently Asked Questions
Can I get another HELOC if I already have one?
Yes, you can get another HELOC on the same property even if you already have one, as long as there’s sufficient equity built into the house.
Can you increase your HELOC limit?
Yes, many lenders will allow you to increase your HELOC limit, especially if your home’s value has increased since you first took out the loan.
How many HELOCs can you do?
Technically, you can have as many HELOCs on your property as you want, as long as there’s sufficient equity in the property.
Sources
- Reed Letson, owner of Elevation Mortgage
About Anthony O'Reilly
Anthony O’Reilly is an updates editor for Benzinga. He’s won numerous journalism awards for his coverage of the New York City economy and Long Island school district budgets.