Can You Have Multiple Home Equity Loans Outstanding at One Time?

Can You Have Multiple Home Equity Loans Outstanding at One Time?

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Yes, it’s possible to have multiple home equity loans at the same time if you own equity in your home to qualify. Whether you’re getting another home equity loan on the same property or multiple home equity loans on different properties, it’s important to understand that your financial profile, your home’s appraised value and your home equity stake will be the major factors in determining your eligibility for additional financing.

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Can I Have Multiple Home Equity Loans on One House?

Yes, you can have multiple home equity lines of credit outstanding, even on the same property, as long as you hold enough equity in the aggregate to meet the lender’s guidelines.

If you own multiple properties and have the equity available, you can have as many mortgages and equity lines or loans as you can qualify for. As long as you’re not overleveraged or owe more than your properties are worth, there’s no limit to the number of home equity loans or HELOCs you can have at one time.

Getting Another Home Equity Loan From the Same Lender

Your home equity lender may be less willing to offer another line of credit if you already have one outstanding with them. This is because of the additional risk incurred from being third in line behind the first mortgage and second mortgage (equity line). In the event that you default on the loan, it could be difficult for the third lender to recoup their investment, especially if your property value has decreased. If you wish to obtain another home equity loan, you may be better off obtaining quotes from a separate lender altogether.

While it’s difficult to obtain two home equity loans or two HELOCs on a home, lenders are more receptive to the idea of a single borrower having both a home equity loan and a HELOC on a property. This is generally because they effectively take two different forms of credit, a home equity loan with a fixed amortizing rate and a HELOC with a revolving line of credit.

If your lender entertains the notion of allowing you to obtain multiple home equity loans and HELOCs on a property, you can expect to be charged a higher interest rate to account for the added risk to the lender. In some cases, you may need to find another lender, even if you have a healthy amount of equity left to draw on.

What Are the Barriers to Getting Multiple Equity Loans?

If you have outstanding home equity debt on your property, you’ll want to note the following restrictions that might prevent you from obtaining another loan:

Loan Caps

Some home equity lenders have maximum loan caps, regardless of your equity position, so it may make sense to borrower from another lender to access your equity. For example, if your bank has a $250,000 limit on their HELOC, but you own the entirety of a $750,000 home, you may need to apply for a second HELOC with another lender if you wish to borrow more than $250,000.

No Expansions on Existing Loans

If you’ve taken on a fixed-rate home equity loan, but now need additional funding, you may not be able to add onto the original financing. You would have to create a new loan for the additional amount.

Soliciting Multiple Loans

It’s very important to make sure you’re not "doubledipping" and that each lender knows about all of your outstanding debts. Shopping around for the best offer is a good way to obtain the best home equity rates; however, applying for and attempting to close on multiple loans simultaneously while not disclosing this to each lender would be considered mortgage fraud. Obviously, they can’t use the same equity stake to secure two different loans.

What Do I Need to Qualify for Another Home Equity Loan?

Lenders will evaluate the following three factors when considering you for additional home equity financing: your property’s combined loan-to-value ratio, your ability to repay the loan and your credit profile.

While a deficiency in one category won’t necessarily preclude you from qualifying for a loan, keep in mind that it may be more difficult to qualify, especially if you’re significantly leveraged from your existing debts.

Combined Loan-to-Value Ratio (CLTV):

All home equity lenders have requirements limiting how much equity you can take out of your home. Many are capped at 90% CLTV, although a few programs offer up to 100% in financing. For a subsequent home equity loan or HELOC, that requirement might drop to an 80% CLTV due to the higher risk the lender would be taking.

Ability to Repay:

Home equity lenders, like traditional mortgage lenders, are interested in ensuring your ability to repay the loan. They will use your income information, debt-to-income ratio, and proof of assets to underwrite your loan. Keep in mind that too much leverage from existing debts and poor credit history may harm your ability to obtain another loan.

Credit Qualifications:

Many home equity lenders have minimum credit score requirements that range from 620 to 700. However, the best interest rates and terms are usually reserved for credit scores of 720+. Lenders may also require higher credit scores if you have a higher combined LTV.

How Long Do I Have to Wait Before I Can Get Another Home Equity Loan?

There’s no mandatory waiting period for obtaining an equity loan. In fact, you can even apply for one immediately after purchasing your home, provided you put enough money down to qualify under the home equity lender’s LTV requirements. As long as your combined loan-to-value meets the lender’s guidelines, there are no time restrictions on when you can open a home equity line of credit.

Should I Finance My Second Home With Home Equity?

Whether you’re purchasing a primary home, second home or investment property, a home equity loan can be an advantageous way to fund the down payment for the purchase of another house. Determining if an equity loan will best fit your needs depends on a few factors:

  • Interest rates on home equity loan products are higher than interest rates on first mortgages. Interest rates often reflect how lenders and investors view the relative risk level of a loan product. Any loan that’s in a secondary or junior lien position relative to a primary mortgage is considered riskier. This is true even for second homes and investment properties.
  • Home equity loans aren’t typically stand-alone purchase mortgages. You would either need to purchase the property prior to obtaining a home equity loan or close on it simultaneously with the first mortgage. If you paid cash for the property and then wanted to liquidate some of your funds back out of the property, using a home equity loan or HELOC would work.
  • You can use a home equity loan to avoid mortgage insurance. Taking out simultaneous loans to purchase a property could allow you to create an 80% loan-to-value first mortgage without private mortgage insurance (PMI) and a 10% loan-to-value equity loan while only putting down 10% of your own funds. This is often referred to as "Piggy-back Financing."
  • Home equity loans are simpler than cross-collateralization loans. Rather than creating a single loan over multiple properties (cross-collateralizing), a home equity loan on your current property can free up the funds for you to purchase another primary residence before you sell your current home. This would enable you to move quickly when the right property becomes available and take your time selling your current home.

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