Appraisal needed for HELOC?

Question

Hello,

About 7 years ago, I purchased a condo from a family member for $50k and after living in it for the first few years, have been renting it out since then. Based on what I see the other units selling for and the condition of that property, my unit should be able to sell for about $125k. I'm trying to figure out the best way to tap into that equity to fund BRRRR investments going forward and one of the options I'm considering is a HELOC.

My question for BP is: what value of the property should I expect a lender to allow me to borrow a % of? I haven't paid for an appraisal on the property since it was purchased years ago so I'm not sure if I should expect to borrow ~75% of the $50k I paid for it years or something closer to its actual market value. From what I understand, HELOCs don't require an appraisal so does the lender just use some other tools to approximate the property's value?

Cassi Justiz · Answer

I spoke with several HELOC lenders and some of them do require an appraisal. They will do 75-80% of current market value. What I was told is that if you are trying to pull that full 75% out, then they may require a "drive by" or "desktop" appraisal. But if you are only looking to pull out a portion of that, then they may not require it as long as they are confident you are well under the loan to value limit they have.

Of course, this will depend on the lender.

Dylan S. · Answer

@Daniel Soovajian For non owner occupied properties, lenders typically go up to 75%-80% LTV maximum of the current market value (appraisal value). Most lenders do require a full appraisal be done by one of their approved vendors.

Kyle J. · Answer

The appraisal is based on the current market value of the home, not what you purchased it for.

The banks I've got my HELOCs through (which were also on rentals by the way) both required appraisals. So don't pay for your own appraisal because the bank will still likely require one of their own. Some charge for it, some don't.

Most lenders won't do HELOCs on rentals. Some will obviously because, as I mentioned, I have them. When you find the ones that will, it's common to see lower LTVs than you can get on owner-occupied properties. The highest I've heard of is PenFed at 80% LTV. Other banks (i.e. Wells Fargo, Union Bank, etc) are usually much lower (60-65% LTV).

I'm not sure if you'll run into any additional hurdles because the property is a condo vs a SFR. You'll just have to call around and start talking to some lenders to find out.

Daniel Soovajian · Answer

Thank you for all the helpful feedback! I really appreciate it

Appraisal needed for HELOC?

Appraisal needed for HELOC?

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