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.
Home Equity Loans
A home equity loan is similar to a HELOC, but instead of having a credit line you can draw from as needed, you get a lump sum of money all at once. You then repay it in fixed monthly payments. These loans use your home as collateral, so you need to have a lot of equity to qualify. They’re a good choice if you need a large sum of money for something like home renovations or paying off debt.
Cash-Out Refinancing
With cash-out refinancing, you replace your existing mortgage with a new one, but for a larger amount. The difference between your old mortgage and the new one is given to you in cash. This way, you tap into your home’s equity and get some extra money for things like renovations or paying off high-interest debt.
Cash-out refinancing can be a good choice if you have a low-interest mortgage and need some extra money. But if you have a high-interest mortgage, it might not be the best option because you’ll end up paying more in interest over time.
Home Sale Leasebacks
A home sale leaseback is when you sell your home to an investor or buyer and then rent it back from them. This way, you get cash from the sale but don’t have to move out. It’s a good option if you don’t qualify for traditional financing or want to avoid taking out a loan.
Unsecured Personal Loans
Lastly, you can take out unsecured personal loans. Keep in mind that these loans don’t require any collateral, like your home, so they usually have stricter requirements and higher interest rates compared to HELOCs.
With this option, you borrow a set amount of money and pay it back in fixed monthly payments. While unsecured personal loans are great if you need cash quickly, they’re usually not a good choice if you’re looking to tap into your home’s value.
Should You Get a Second HELOC?
Now that we’ve answered the question, “Can you have two HELOC loans,” the next logical question is whether or not you should go for it. Here’s the thing: opting for multiple home equity lines of credit is something you want to carefully consider before signing on the dotted line.
Of course, a second HELOC can give you access to more cash plus other benefits. That said, it’s usually better to close out your old HELOC and get a new loan for the total amount you need. This makes sense if you have enough equity in your home.
Even if the current equity in your home is a bit on the low side, you might want to explore our unique HELOC offer at RenoFi.
Is a Second HELOC Worth It?
To wrap up, while you can get two separate or multiple HELOCs, it’s usually better to consolidate your loans. This means closing out your existing HELOCs and replacing them with just one loan. This makes things easier to manage. Plus, it can even save you money on interest and fees in the long run.
Interested in greater borrowing power with a single RenoFi HELOC? Or maybe you just want some guidance on financing your home renovation. Whatever the case, don’t hesitate to get in touch with our team today. We’ll be happy to help.
RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the After Renovation Value of your home. This allows you to borrow on average 11x more, get a low monthly payment, and keep your low rate on your first mortgage.
And while you’re still here, take a moment to check out our rates and see how much you qualify for.
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