Real Estate Broker · Atlanta, GA · Member since 2015 · 32 posts · 10 votes
Hi all, I have a SFR valued at around 215k. The original loan was for 170k and I currently owe 140k. What’s the best strategy to pull out the equity to buy another property based off the new value? Traditional banks I’ve spoken with will only give me a cash out refi based off the original loan amount and money I owe now.
Do not order an appraisal because most lenders have their own appraisal companies and you will be paying for two appraisals. Is the property in Atlanta?
Rental Property Investor · Seattle, WA · Member since 2018 · 129 posts · 163 votes
8y
@Greg Davis
HELOC up to 90% LTV at KeyBank if you have a fairly established relationship.
Going at 80% LTV should give you plenty of options. Shop around as some may even have 0 fee (the banks will pay for appraisal).
Real Estate Coach · Austin, TX · Member since 2018 · 56 posts · 52 votes
8y
@Greg Davis - you have about $25K to $30K in equity to pull. that will afford you one SFH rental at $100K purchase price which will cash flow you $250 per month, give or take, your fees alone from a HELOC will be around $3K and then you have a monthly payment of $150 to $200, netting you $50 per month and so breakeven point would be 5 years.... maybe three at best. 3,000/50 = 60/12 = 5 years.
I think you wait or HELOC it, take out and payoff any credit card debt. Have you tapped into your 401K, IRA? Switching now from a peak bull market into a self-directed IRA and investing in SFH rentals from there would benefit you more than the HELOC pain. Happy to help.
Real Estate Broker · Arab, AL · Member since 2017 · 3 posts · 1 vote
8y
@Greg Davis hi Greg... I'm using Redstone Federal Credit Union here in N Alabama for our HELOC. (unfortunately to catch up taxes) but, they'll loan up to the actual current appraisal value. Our home appraised for $377,000 and I did an 80% ($301,600) loan. Then RFCU did the HELOC for remaining difference. Monthly pmt is 1.5% of outstanding balance. Knock it down just like a credit card and use it again. I'm not sure how far out they go though... Good luck!
You can do HELOCs on rental properties through Pentagon Federal CU ("PenFed"). If you own more than 3 rentals and DON'T own your primary residence, you're out of luck, but otherwise... Competitive rates, no appraisal necessary (unless you want to pay for one, in the hopes of getting a better number on your investment prop). Not a bad option... They're also good for mortgages on investment properties (currently 4.5%, 30 yr am, 10 yr balloon)...
I use PenFed and have two investment property HELOCs with them. I do not have any owner occupied properties. I had to pay for an appraisal on both properties as not all their properties work for the implied value system they use. The current HELOC rate is 6% for an investment property.
Real Estate Agent · Albany, NY · Member since 2016 · 22 posts · 10 votes
8y
Hi @Greg Davis. Great question! Accessing hidden equity is an important tool in any investor's toolbox. I recommend using a HELOC (home equity line of credit) and not a home equity loan (2nd mortgage). This is because you can pick and choose if/when/how much of the HELOC you wish to use, and you only pay for it when you need it! It sounds like part of your problem may be the "traditional" bank. Some banks will not offer a HELOC on a non-owner occupied property; although many others will if you know where to look! I highly recommend talking to your local banks, credit unions, and community banks. They are often the most likely and willing to accommodate. I just did the exact same thing on my 3 unit investment building. Keep a few things in mind: 1) Some lenders do have a 'seasoning' period, although mine was only 6 months and it wasn't an issue for them; 2) Your lender WILL conduct an appraisal (which you may or may not have to pay for depending on lender) to determine a new, current value; 3) They will lend an amount to you based on a total LTV (loan to value). So your HELOC$$ = ARV * %LTV - 1st Mortgage; sounds like you should have $30k-$50k to access depending on the %LTV your lender allows. Keep shopping around!! Hope this helps.
New Braunfels, TX · Member since 2018 · 19 posts · 10 votes
8y
@Greg Davis
Great question I am struggling with this my self and have been getting a bunch of NO’s as well
Great information from the contributors
I will be sure to look in to Penfed. Good luck
Hi @Greg Davis, you may get a HELOC and / or Refinance based on the appreciated value as long as the appraisal is ordered by the lender and other underwriting guidelines are met. Do you have a loan amount in mind? Is this property your homestead, second home, or is it a rental property? I would need more information in order to run an scenario and give you the details of what you could get out there. But it is definitely possible.
Hey @Vik P., there is a new program now for investors, 80% LTV, with the only condition of property appraisals based on 110% of projected income. No More Questions Asked. :)
Hi @James Isaacs. There's no such thing as a stupid question. In fact, it is a very valid one. I wasn't very clear about it in my post. It means that your estimated PITI should not be above 90% of the projected monthly rental. For instance, if the market monthly rental expected by the appraisal of the property is 1000.00/month, your loan montly payment is allowed to have a PITI of up to 900.00/month.
@Michele B. Do you know of any banks that will lend 80% LTV on a cash out refi? I have only ever been able to find 75% LTV
Thanks!
I think that there are some banks that will do that, there are more than banks that finance too. You might pay more in interest for less is down payment.
Realtor · Charleston, SC · Member since 2016 · 229 posts · 159 votes
8y
Closing on my HELOC tomorrow in a very similar situation. It didnt make sense to cash out the equity and increase my monthly payment in my now current primary residence since it will be a rental soon. The HELOC allows you to tap the equity without making your payment higher (until you borrow against the HELOC) while enjoying the benefits of a small mortgage payment yielding cash flow each month. Its nice to haveHELOC and now once a deal comes up that interests me I can just buy it and use both the cash flows (one from subject property and then new property bought with heloc) to pay down HELOC.
What I can tell you is using the small local bank in my area, I was able to get LTV of 89.9% of appraised value, and because I opened a checking account with them (zero balance requirement) all closing costs were wiped out, so it cost me $0.00.
I have a 10 year draw period, and a 20 year repayment period on the loan if I get debt on it. I have not closed on it yet so I dont know what the payments will be.
@Chris Armstrong well I’m knew to this and I was thinking about getting a HELOC for my current rental property... the current note minus insurance and taxes is $1300 but the loan balance is 242k. I would want to increase my payment to $2400 so please keep me posted.
I got a HELOC on my current primary which will become a rental in a few months. I dont know how much LTV you can get on a secondary residence HELOC, but sure I will keep you posted