Sacramento, CA · Member since 2009 · 42 posts · 0 votes
For a property that does not have a mortgage, what is the best way to get cash out for investing purposes, whether it is for another property purchase or putting the money in the stock market.
A HELOC or HEL is possible, and since it will be the first lien, I would think the rates would be below 4%. Is is better to just get a lump sum (HEL) even though I would be paying interest right away, but will lock in the rate.
I don't know if I can just get a regular mortgage since the HEL seems similar.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
13y
Actually, you can just get a regular (conventional) mortgage on it. Usually, the lender will want to see that you've owned it for 6-12 months (depending on the lender), and you should be able to get about 70-75% LTV (again, depending on the lender).
I did this last year and got a rate in the low 4%. Got a quote to do it again (from a different lender) about 2 months ago and was again quoted a rate in the low 4%. (Mine are non-owner occupied properties. You should be able to get a sub-4% rate if you are living the property you are trying to do this on.)
Sacramento, CA · Member since 2009 · 42 posts · 0 votes
13y
It sounds like the conventional mortgage would be an advantage and should have a lower interest rate since there are closing costs. I believe the HEL closing costs are covered by the bank.
For tax purposes, does it matter what I use the money for if I get a conventional mortgage. For a HEL, I don't think there is any restrictions if it is related to an investment (like real estate or stocks).
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
13y
Originally posted by Patrick H.:
For tax purposes, does it matter what I use the money for if I get a conventional mortgage. For a HEL, I don't think there is any restrictions if it is related to an investment (like real estate or stocks).
It depends. What type of property would you be taking the mortgage out on (i.e. your main home, second home, rental property, etc), and what might you use the money for (i.e. buy another rental property, fix up a home you already own, take a cruise around the world, etc)?
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
13y
Originally posted by Patrick H.:
The mortgage will be on my main home. The loan will be used to purchase a rental property.
Your interest payments in that scenario would be deductible against the rental property you buy, even though the loan will be secured by your primary residence.
Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
13y
I've recently done a HELOC to get extra cash do acquire an apartment and as it was only 1/3 of the value of the property the lender gave us an interest only loan and didn't need a bunch of fees and no appraisal. We will pay it back in about a year so the rate of 4.56% was better than incurring fees and have a conventional mortgage.
Sacramento, CA · Member since 2009 · 42 posts · 0 votes
13y
It seems like the advantage of the HELOC and HEL is the avoidance of fees, which is around $6-$8k for a conventional loan. But in my case, is there any disadvantage of having the HELOC or HEL as the primary lien, since they are typically used as a secondary lien.
Hi patrick, I just closed on HELOC today on an investment property I have in South Florida. The rate is WSJ prime + 1% and floats with a floor of 4.25% and a ceiling of 18%. The draw period is 10 years. I owned my place clear but they were willing to give me a line upto 65% of the appraised value of the property.
Downside to my HELOC is that I have been charged about $2300 in fees, but this is an investment property and many banks won't do HELOCs on investment properties. I had to call many banks before I found one willing to do it. On a primary residence you should be able to find a bank that won't charge you any fees for the line since its your primary residence and many banks = more competition and less fees. I thought about doing a conventional mortgage on the property but the fees would have been greater and the documentation would have been more extensive, and I didn't need the money right away.
The primary reason I opened the line was to buy properties for cash without having to go through financing. In south florida for less expensive distressed properties it seems like your offer won't be looked at if its financed.