Personal FHA or Family's HELOC?

4 Replies

I want to become a real estate investor. This is my story. So far 2019 has not been very kind in terms of looking for a 2 family home here in NYC.

I work as an engineer in construction. Stable job, stable income. I need a place of my own soon.

I've been pre-approved for $625k (can be pushed higher says the loan officer, depending on location and rental income). My intention was to "house hack" with rental income and put down 5% and pay PMI. I am also paying mortgage for my mothers 1 family which also has tenants paying rent (not reported). From my own research I've come to learn that it's quite possible for me to apply for a HELOC on her property for 550k+ (I do not live on this property). Naturally I sat down with my family and explained these options and they are comfortable with anything that I choose.

What did I want to do 7 months ago? 5% down + PMI, live ALMOST for free within 5 boroughs of NY and take it from there. Reality, good deals get scooped up too quick and overbid for the #'s to not make sense. This is also considering living in a basement or taking the risk renting it.

Current thoughts as of tonight. If I were to find a way to utilize this HELOC I "FEEL" I would find it much easier to purchase a home under market asking price (short sale, foreclosure, wholesalers, etc), fix it, refinance it, and pay back the HELOC. The "BRRR" strategy.

This has been an ongoing battle in my mind for quite some time now. I appreciate all those who have read this through to the end. All comments, opinions and thoughts no matter how harsh are welcome and highly appreciated.

Thank you Biggerpockets Community for providing an outlet for someone like me who knows nothing but wants to know everything.

Hi, a little bit of additional information or clarification might help us point you in the right direction. Are you considering taking the first mortgage and then using the HELOC on top of that? Or just looking to have a credit line available so you can pay cash for a good deal? Also, $550k is a pretty large amount for a HELOC, how would the payments be structured, as they are often a percentage of the outstanding balance drawn, not a regular mortgage amortization schedule, so make sure the payment isn't going to be higher than you expect. Even if it's interest only the rate on the HELOC may be higher than what the first mortgage would be.

 Is the loan officer telling you they will consider rental income on your proposed purchase, even though there’s no past record confirming the amount or consistency?

 If the deals in your area are being scooped up fast, you may just need to watch the market very closely and act quickly when you see something good.  Or be willing to take something that’s a little bit more of a fixer-upper as that’s not what most people(non-investors) are looking for and may have less competition.  Though I understand appraisal values may be more difficult on a fixer with only a 5% down payment.  Good luck with whichever route you decide to take. 

Jason thanks for chiming in! 

"Are you considering taking the first mortgage and then using the HELOC on top of that?"
If I were to get an FHA, would I still be able to pull a HELOC for my mothers home with an existing mortgage under my name?

Or just looking to have a credit line available so you can pay cash for a good deal?"
With a line of credit I would Buy, Rehab, Rent, Refinance, and repeat. I came up with the $550k+ as that is around 75% of the estimated value minus whats owed.

Is the loan officer telling you they will consider rental income on your proposed purchase, even though there’s no past record confirming the amount or consistency?
He based my pre-approval on a 2 family home (of which rental income is considered).


I have the right people to help me with a fixer-upper. In fact, that was my plan with the FHA so that I can buy below market price. I'm just not having any luck hence why I'm considering the HELOC route.

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I’m not familiar with the market in New York.  Do your due diligence with this option.

Whenever someone is looking to house-hack, I always recommend the FHA 203k loan. It allows you to buy properties in disrepair that a traditional loan typically wouldn't finance. The big plus with this loan is that you get to finance the rehab costs along with the purchase price. If purchased correctly, you could move in with some solid equity.

Two negatives of this strategy are:

1. You cannot do the work yourself. You must use a HUD approved contractor

2. You have to find a seller willing to work with this loan.  Obviously cash is the more sought after option when it comes to these types of properties.  

When it comes to it, obviously you'll have a better chance getting cash offer accepted. That's where your HELOC would have the advantage. The 203k will call for a little more work, but you put very little of your own money into the deal plus you get some added equity.

Okay, I understand about the rental income now, didn't realize you were looking at multi family. As to whether or not you qualify for both the FHA and HELOC it would depend on your income, debt ratios and maybe borrowing experience. They may or may not be comfortable granting two large loans at the same time, before you establish payment history on the first one.