HELOC or Home Equity Loan or Personal Loan

1 Reply

Hey BP,

Newbie here looking to close my first two deals on two buy and hold duplexes. 

Ran into a hiccup when lender initially told me they would finance 85% of the loan now has changed to 75% but I only took out money from my 401K to satisfy what she initially told me. 

I have a SFH that has about $25k equity. I need about $14k to close the deal at the new ratio.

What options do you think I could explore to fund the $14k. HELOC, HEL, or personal loan?

Thanks

Howdy @Cameron Parr !  I'm sorry to hear about the curveball thrown your way by the lender . . . those are never fun and all too common.

A HELOC will be capped at a a certain equity percentage of the asset, so if you have $25K in equity please don't anticipate having access to all of that. For instance, if the home is valued at $200,000 and the bank limits the HELOC to 85% LTV then you would not have access to any of that equity since they will only give access to the equity up to $170,000 total debt against the asset. If the home is valued at $50,000 then you'd be able to access up to $42,500 in total debt against the property (all but $7,500 of the total value of the property). These have variable rates, but very nice in that you only pay for what you are using and it is straight-interest instead of amortized interest. These typically have low fees and are quick ways to access the cash.

A Home Equity Loan typically has higher fees associated with it and is amortized instead of straight-interest (may or may not matter to you).

A personal loan may be found to have the highest interest of the three (just a guess) as the bank is collateralizing the loan directly against you and the path to having anything to claim in the event of a default is more cumbersome for them.

Could you take more from your 401(k) in terms of a self-funded loan (many providers offer this option and it is a pretty great investment tool)?

Good luck on the journey!