Can You Have Two HELOC Loans?

You can have two HELOC loans on your property, but although possible, they require careful consideration. A home equity line of credit (HELOC) lets you borrow money using your home’s equity, which can be helpful when you’re looking to pay for things like home upgrades. You can also use it to consolidate or pay off debts or even cover unexpected expenses.

That said, managing more than one HELOC requires careful thinking and planning to stay financially stable. In this article, we cover the ins and outs of having two HELOC loans, including the benefits and risks and what you need to know before making a decision.

What Is a HELOC?

A HELOC is a revolving line of credit that lets you borrow money up to a certain amount, using your home as collateral.

Here’s how it works:

A HELOC allows you to take out cash as you need it during the draw period (usually 10 years). The interest rates can go up and down with the market, but they’re often lower than what you’d pay on other loans.

But there’s a catch.

If you can’t keep up with the payments, you could risk losing your home.

At first, you only have to pay interest on what you borrow. Later, during the repayment period (typically 20 years), you start paying back what you borrowed plus interest.

How Many HELOCs Can You Have?

There’s no limit to how many HELOCs you can get. You can take out multiple HELOCs as long as you keep enough equity in your property. Most lenders usually let you borrow between 80% and 85% of your property’s value with HELOCs, but you need to maintain at least 15% equity after each loan.

Can You Have Multiple HELOCs on the Same Property?

Yes, you can have more than one HELOC on the same property if you meet your lender’s requirements and there’s enough equity in your home. You’re more likely to qualify for multiple HELOCs if you own your property outright.

Just keep in mind that you’ll need a good credit score ― around 600 or higher ― to qualify for multiple HELOCs. Also, because lenders generally consider having more than one HELOC as riskier for them, they are more likely to offer you a higher interest rate.

Is It Possible to Have Multiple HELOCs From Different Lenders?

Yes, you can get multiple HELOCs from different lenders for the same property. Unlike regular mortgages, where you might stick with one lender for convenience, HELOCs give you more options.

Each lender can offer different interest rates and repayment terms, so it’s smart to look around and see what each one offers.

That said, it might be easier to use your current mortgage lender for a HELOC because they already know about your home’s value and finances. But that doesn’t mean they’ll always give you the best deal.

If you choose to get multiple HELOCs from different lenders, make sure to be open with each lender about your plans. Trying to get HELOCs from multiple lenders without letting them know is considered mortgage fraud.

Why Having a Second HELOC Might be Difficult

If you already have a HELOC on your house, most lenders will be hesitant to give you a second one. That’s because it’s riskier for them if you stop making payments.

Here’s why:

When you sell your house to settle debts, the mortgage must be paid off completely before the first HELOC gets any money.

Let’s say your house sells for $150,000, and you owe $130,000 on your mortgage plus $30,000 on your first HELOC; the mortgage gets paid off first with $130,000. That leaves $20,000 to go toward the first HELOC, but you still owe $10,000 on that first HELOC.

Now imagine there’s a second HELOC, too. It’s at the very back of the line. The second HELOC only gets paid if there’s any money left over after the mortgage, and the first HELOC is fully paid off. Many lenders simply don’t want to take on that level of risk, so they will either decline your application for a second HELOC outright or give you a bad deal because it’s too risky for them.

What to Consider Before Taking Out Multiple HELOCs

Before taking out a second HELOC, consider these important factors:

How Much Equity You Have in Your Home

One of the key things lenders will check is how much equity you have left in your home. You usually need around 15% to 20% equity in your home to qualify for another HELOC. This ensures you have enough value in your home to borrow against.

Your Credit Score

Lenders will check your credit score to see how reliable you are with borrowing. For a HELOC, you generally need a credit score of at least 600, but some lenders might want a higher score. Having a higher score can also mean lower interest rates, which can save you money over time.

Loan-to-Value (LTV) Ratio

Lenders use this ratio to decide how much of your home’s value you can borrow. They usually limit the amount you can borrow to protect against market drops that could leave you owing more than your home is worth.

Interest Rates

HELOCs usually have lower interest rates than personal loans or credit cards, but they can stretch out over a long time. That means you might pay more interest in total by the end of the loan.

Managing Repayments

While having access to more funds can be tempting, you want to consider whether you can handle paying back multiple HELOCs. More debt can affect your financial goals, so it’s important to carefully think about whether it will help you reach your objectives or make it harder to achieve them.

Pros of Having Two HELOC Loans

• More Money Available: Having two HELOCs can give you access to more money. This is especially helpful if you have big expenses like home renovations, college tuition, or medical bills and need more money than just one HELOC can provide.
• Flexibility: HELOCs let you borrow money as you need it and repay it on your own schedule during the draw period. And having two means you have even more options for managing your finances. You can borrow as much or as little as you need and only pay interest on what you use.
• Lower Interest Rates: HELOCs usually have lower interest rates than credit cards or personal loans. This makes borrowing cheaper. Having two HELOCs can give you even more low-interest borrowing power.
• Tax Benefits: If you use the funds for home improvements, the interest you pay on HELOCs might be tax-deductible. This can save you a lot of money when tax season comes around, which makes two HELOCs a potentially good option for funding home projects.
• Flexible Repayment Options: HELOCs often come with flexible repayment terms. You can choose to make interest-only payments or start paying down the principal. This flexibility can help you manage your monthly budget, especially if your income or expenses change.

Cons of Having Multiple HELOCs

• Risk of Borrowing Too Much: Having access to more money means you might be tempted to borrow more than you can handle. This can lead to financial stress if you struggle to keep up with repayments.
• Changing Interest Rates: In most cases, your monthly payments can go up or down because HELOCs usually have variable interest rates. With two HELOCs, you’re exposed to twice the uncertainty, so it’s harder to plan your budget if rates increase.
• Risk of Losing Your Home: Having two HELOCs means your home serves as collateral to both lines of credit. If you can’t make the payments on either loan, you could risk losing your home to foreclosure. Remember, the more debt you have, the harder it is to keep up with payments.
• Extra Fees and Costs: Taking out multiple HELOCs usually means you’ll end up paying extra fees such as appraisal fees, application fees, and annual fees. These costs can add up fast and eat into the benefits of having multiple HELOCs.
• More Debt to Manage: Having two HELOCs means you’re taking on more debt. This can strain your finances and hurt your credit score. It can also make it harder to borrow for other needs. It also means higher monthly payments, which can be tough to manage.

HELOC Alternatives

If you’ve decided that a HELOC (whether one or two) isn’t right for you, there are other options you can explore. Here’s a quick list of HELOC alternatives you might want to consider:

Leveraging RenoFi’s Unique HELOC Offer

RenoFi has a unique HELOC that lets you tap into your home’s future value after renovations. That’s right; not the current equity but the after-renovation value ― and that’s before you even start the actual renovation!

While a +85% LTV HELOC may be a suitable solution for many, it often isn’t enough to fund a home renovation project. RenoFi loans are a unique solution because they maximize borrowing power by leveraging the after renovation value of the property as opposed to simply using the current home value, like a traditional HELOC.

Here’s how it works:

For example, imagine your home is currently valued at $500,000 and your outstanding mortgage balance is $400,000. You are planning a renovation and expect that the after renovation value of your home would be approximately $640,000. Your current loan-to-value ratio (LTV) is at 80%, which means that you effectively can’t borrow anything to fund your renovation. A RenoFi loan, however, would allow you to go as high as 150% LTV or 90% LTV using the after renovation value.

So in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000 thanks to the after renovation value of your home!

If you’re considering a home renovation and need a HELOC that gives you greater borrowing power, exploring RenoFi’s options might be the perfect solution for you.