How to Get a HELOC on a Second Home

Can you get a HELOC on a second home?

Yes, you can get a HELOC on a second home, but it's tougher than getting one for your first home. If the home you are using for a HELOC is a second home or a vacation home, lenders will be more stringent in their requirements.

Still, a HELOC on a second home can be a smart way to fund renovations, cover unexpected costs, or debt consolidation. It lets you tap into your home's value without refinancing or risking your primary residence. But expect higher interest rates compared to a HELOC on your first home.

Here's what you need to know about obtaining a HELOC for a second home and whether it aligns with your financial situation.

In this article (Skip to...)

• HELOC on a second home
• HELOC pros and cons
• HELOC requirements
• How to get a HELOC
• HELOC alternatives
• FAQ

Understanding HELOCs for second homes

A HELOC on a second home gives you flexible financing options, whether you’re upgrading the property, covering education costs, or adding to your real estate portfolio.

What is a HELOC?

A HELOC, or home equity line of credit, is a type of second mortgage loan that allows homeowners to borrow money using the equity in their home. Unlike a home equity loan, which gives you a lump sum upfront, a HELOC gives you a revolving line of credit that you can use as needed. You only pay interest on the amount you borrow, and you can use the funds for any purpose you like.

How does a HELOC work?

A HELOC gives you flexible access to your home equity in two main stages: a draw phase and a repayment phase. Here’s how a HELOC on a second home typically works:

• Second-home HELOCs may come with lower loan-to-value (LTV) limits compared to primary homes.
• The draw period usually lasts 5 to 10 years, during which you can borrow as needed.
• Borrowing limits depend on your equity, credit score, and debt-to-income ratio.
• During the draw period, you’re usually only required to make interest payments on the amount you borrow.
• A repayment period follows, typically lasting 10 to 20 years, during which you repay both the principal and interest.
• Most HELOCs have variable interest rates that fluctuate in response to market changes.

Pros and cons of a HELOC on a second home

The biggest benefit of getting a HELOC on a second home is that you can tap the equity in your second property without refinancing your second mortgage or your first mortgage. The biggest drawback is that if your income drops, you could lose the second home to foreclosure.

Pros of a HELOC on a second home

• You can pull funds from your second home's equity as needed.
• You only pay interest on what you borrow during the draw period.
• Closing costs are often lower than those for refinancing a second home.
• You avoid touching the mortgage tied to your primary residence.
• Interest may be tax-deductible if used for home improvements on the second property.

Cons of a HELOC on a second home

• Some lenders won’t approve a HELOC on a second home that’s used as a rental property.
• Variable rates on second-home HELOCs make repayment unpredictable.
• Lenders often charge higher rates for second-home HELOCs.
• You risk losing your second home to foreclosure if you miss mortgage payments.
• You’re adding a significant liability to your monthly budget.
• Without a repayment plan, a HELOC on a vacation home adds more risk than return.

Eligibility requirements for a HELOC on a second home

When applying for a HELOC on a secondary home, lenders typically have more demanding requirements compared to primary residences. Specific HELOC requirements will vary by lender, and they fall into two main categories:

Financial requirements for a HELOC on a second home

• Most lenders require a credit score of 680 to 700 or higher for a HELOC on a second home.
• Your debt-to-income ratio usually needs to be below 43%.
• Lenders may require you to keep several months of HELOC payments in cash reserves.

Property-related requirements for a HELOC on a second home

• You’ll likely need at least 15% equity in your second home to meet the 85% loan-to-value ratio.
• Many lenders want you to own the home for at least one year before applying.
• A professional home appraisal helps the lender confirm your second home’s current market value.

Second-home mortgage rules are usually more flexible than those for investment properties. So, it's often easier to find lenders offering home equity loans and HELOCs on vacation homes than on rental properties.

Why are HELOC rules different for second homes?

Lenders view second homes as a higher risk because borrowers are more likely to stop paying for a vacation home than a primary home when money gets tight. A home equity line of credit on a second home also carries added risk because it’s subordinate to the primary mortgage.

In a foreclosure, lenders holding second liens typically receive payment last or not at all. To protect themselves, lenders set tighter approval standards, limit the loan-to-value (LTV) ratio, and charge higher interest rates for a HELOC on a second home.

How to get a HELOC on a second home

Getting a second home HELOC is comparable to getting one with your first home. Once you’ve determined you're a good candidate, follow these steps to apply.

1. Assess your equity

Before applying for a HELOC on a second home, you’ll need to figure out how much equity you have. Home equity is the difference between the current market value of your home and your outstanding mortgage balance. Most lenders want you to have at least 15% to 20% equity before approving a HELOC.

2. Gather necessary documentation

To expedite the process, gather key documents, including proof of income, recent bank statements, details about your current mortgage and outstanding debts, homeowners insurance, and property tax records.

3. Find the right lender

Not every lender offers HELOCs for second homes, so take time to shop around and compare options. Traditional banks, credit unions, and online lenders all have different rates, fees, and repayment terms. Some banks that offer HELOCs for second homes may even specialize in financing vacation homes or investment properties, which could help you get better terms.

4. Submit a HELOC application

Once you pick a lender, you fill out an application, send in your paperwork, and let them check your credit. Your credit score will determine whether you get approved and what rate you are offered.

5. Close on your HELOC

After you apply, the lender will get your second property appraised, look over all your info, and decide if you’re approved. If you are, you’ll sign some paperwork and get your HELOC funds 1-2 weeks later.

Best uses for a second-home HELOC

• Fund business ventures or invest in opportunities outside of real estate that could build future income.
• Use HELOC funds to upgrade kitchens, bathrooms, or outdoor spaces that increase your second property’s value.
• Cover emergency expenses, such as medical bills, urgent repairs, or unexpected job loss, without draining your cash reserves.
• Consolidate high-interest debts from credit cards, medical bills, or personal loans.
• Pay for tuition, school fees, or other education costs at lower rates than private student loans.
• Use HELOC funds for a down payment on a new home, such as an investment property or rental property.

Alternatives to a HELOC on your second home

Home equity loans

A home equity loan gives you a lump sum at a fixed interest rate with predictable monthly payments. This makes it a good choice for big, one-time expenses like a down payment on a vacation home.

In a comparison of a home equity loan vs. a HELOC for a second home, a HELOC typically comes with lower closing costs and interest-only payments during the draw period but carries more risk due to its variable interest rate.

Both options tend to have stricter qualifications and higher interest rates when used for a second home purchase.

Cash-out refinance loans

A cash-out refinance lets you replace your current mortgage with a larger one and take the difference as cash to use for a down payment on a second home.

While this option can unlock equity, cash-out refinancing on a second home usually comes with higher interest rates, stricter equity and credit requirements, and higher closing costs compared to refinancing a primary residence.

Personal loans

Personal loans offer fast access to cash without using your second home as collateral, which helps you avoid the risk of foreclosure. However, interest rates on personal loans are usually much higher than on home loans, so they are often a last-resort option.

FAQs about a HELOC on a second home

Explore options for a HELOC on a second home

Your second home has real value. A home equity line of credit lets you turn equity into cash you can use for home remodeling, investments, or anything life throws your way.

Interest rates and terms vary widely, and the right HELOC can save you thousands over time.

Do not let your equity sit in your current home. Put it to work. Click below to compare the best HELOC loans for your second home.