HELOC Closed! $94,000! It was quite an adventure!

36 Replies

Hello. This is probably not as much of a success story as I often see here but... To me, this is big. 

We bough the property at the end of 2015. All cash. $54k with closing costs. Owner occupied. We renovated it big time with leftover cash, some personal loans, and 0% APR credit cards. No contractors, at all. It was a REO and it required work, a lot of work. I can run electrical and plumbing in my sleep now. We are probably in for around $80k-$85k total with the purchase cost. The house is now worth close to $180,000. Now we are working at paying off all that debt and I have to say it hasn't been smooth sailing all the way because things come up but it's going good. Long hours at work, chipping away at that debt. We are closer to the end than ever.

A few months ago (over two months, exactly) we decided to get a HELOC. TRY getting a HELOC. I was pretty positive we would not get approved although our credit is very good. Some leftover debt is still there from the renovation and I change jobs quite often. Very often actually. Whoever pays more! I even changed industries recently, but came back to the original industry I was in. After reading about how difficult it is to get a HELOC nowadays, we decided to try it anyway. Nothing to lose. I was expecting it to get denied and the bank to laugh in my face. The process took OVER two months with TD BANK. I DO NOT recommend them. Just don't do it. Go to your local credit union instead. TD BANK has a tendency to take their time and go back and forth with their customers with the littlest things. Multiple departments, they appear to be overloaded with applications. Two weeks for verbal employment verification, seriously? Right before closing they pointed out that the loan number has to be added to the insurance policy or we can't close. Like if that could not be handled earlier... I sure learned a whole lot about the process.

We wanted to get a $140,000 from them but they could only approve $95,000. No surprise here. They did a drive by appraisal, compared the property to local REOs that were not even similar to our house, and missed the ball by about $70k. It's ok. I'm happy with what we got. I just don't know who wanted this closing to take place more, me or them. When I realized how much they wanted this line to close I was quite surprised. The property is free and clear. No mortgage. They got first position. I got a 10 year HELOC at 5.74% variable with a 20 year repayment. Not the BEST rate but definitely good enough for our purpose of buying out of state and refinancing within 6 to 8 months or sooner if possible, with he ultimate goal of holding the properties. As you may have guessed, I will be doing most of the work myself, out of state. It's a crazy idea, but so was buying this house in the first place. We also have the option to lock into three loans at (I believe) 1.99% within that $95,000 without any additional paperwork. Quite secure, in my opinion. If the market starts to tank I guess I will just max out the HELOC, hold the proceeds, and pay the interest to have the funds liquid in my account. The interest payment is somewhere below $400 a month. Wait, can I even play game like that? I sure hope I can... Buy when everybody else is selling!

So, my point here is. Do not get a HELOC with TD BANK unless you have all the time in the world to hang on the phone with them and send additional/ corrected paperwork every day. On the other hand, if you have a free and clear property, you might wanna give them a shot. Chances are they will approve it, even if your tax returns show low income for the past few years, and you change jobs twice a year with some unemployment benefits in-between and a single maxed out credit card on your credit report and a few additional personal loans.

Now the goal is to become debt free and build up some more cash reserves before even thinking about investing into the next property. We probably could pull it off at this moment, but I sleep better at night knowing that I have no debt, before I jump into more debt, even if its good debt, such as a mortgage.

If anybody has any questions about the HELOC process feel free to ask. I'm still fresh, and my head is still spinning from all the paperwork. I will do my best to answer to the best of my abilities.

Just wanna add one more thing for all the new young guys just starting out. Back in 2014 we were young, dumb, and naive. We were living in an attic apartment, with a baby on the way and no health insurance. Had some debt, and big dreams. Every month we would pay the landlord, always on time. That's just how we were raised. Always pay what you owe, and pay on time. He told us we had to go once the baby is born. Harsh reality. There we got the idea. Our landlord was making bank. If HE can do it WHY can't WE do it?! Family told us we were, well... Young, dumb, and naive thinking that we could pull this off. My friends were driving BMW's back then while I was driving a TDI hooptie with no heat in the winter time. That car was new when I was attending daycare... I hear our tenants watching TV now and complaining how life sucks because money because this and that. I don't even own a TV. I spend my days at work, working on the property, on realtor, cryptocurrencies, ICOs and... well... BiggerPockets.com! 

We are by no means where we want to be financially, but now we almost have the tools to jump into the real estate buy and hold game out of state. So everything is possible. We don't take "no" or "impossible" for an answer. Nobody should. 

I'm in the process now of deciding between a HELOC or home loan against the equity in my primary residence (100%) to buy my "first" investment property. I'd prefer the HELOC because it's "reusable" but the variable interest rate worries me given the current rate environment. I got approved for a loan with Quicken that is essentially an FHA refi, so not reusable like the HELOC, but the interest rate is almost a full percentage point lower, which adds about $100/mo in cash flow by my calculations if I rent it out. Said loan has pretty high fees though (almost 10% of the loan amount) which I'm annoyed by when a HELOC has no fees. Both the HELOC and the loan have no prepayment penalty though, which is good. I'm torn between the higher rate but the added benefit of flexibility and reuse-ability of the HELOC, or the lower, fixed rate and increased cash flow of the loan.. thoughts?

@Jake Recz

And you are not sure if you call this a success story? Get off it! This is great.

You acquired the property and got it rehabbed, you gained a lifetime experience with the financing part and now you have the history with the bank for future transactions… if you don’t call this success, am not sure what qualifies as success…

I say a big congratulation for the great work!

Keep it up, Bud :)

@Megan Clancy I'm sure you know that there is a cap on how much the APR on the HELOC can go up. In my case it's somewhere around 16%. That sure doesn't help a lot but hey... at least there is a cap. The thing with the HELOC is that if I don't use it I'm not paying for it. No fees or closing costs either. There is no rush. Personally I would go with the HELOC if you're looking for short term financing. My plan is to purchase with the HELOC and refinance as soon as possible. I just wanna have the ability to come into a potential deal with cash and the HELOC gives me that ability and the flexibility.

@Ndy Onyido thank you! Im just one of those people that can never be satisfied haha If something works out I wanna do it again and again and keep working on making more income. 

Hi @Jake Recz

Thank you for the great account of your process. Congratulations in making it to where you are today. It sounds like hard work and sacrifice.

I'm newer and am considering a few options for recouping cash from a property. I have been talking to the banks and one option that recently came up is to do a cash recoup (REFI) for up to the original purchase price and then add a HELOC (must be with that bank) to cover the remaining difference. Is the person that I'm speaking with possibly not up to date with the realities? The property would be acquired ~60% of value. Did you consider this option and is this not as feasible as I was lead to believe?

The other option that I've been consider is the HELOC for as much as possible much as you did however I am concerned that when I need it most (market tanking) that ability to take cash will diminish or rate increase. Maybe I'm not up to speed with the mechanics of a HELOC.

Thanks for sharing, @Jake Recz . Excellent work. 

With this deal, you were through many aspects of real estate investing: select a property, close the deal, search for finance, rehabbing (forst hand), and deal analysis.

Great!

@Jake Recz

The thing with the HELOC is that if I don't use it I'm not paying for it. No fees or closing costs either. There is no rush. Personally I would go with the HELOC if you're looking for short term financing.

Ditto! Thanks for sharing - Jack 

@Jake Recz congrats on your inspiring success story! To go from paying the rent to collecting the rent is life changing indeed. I was there too. I am applying for a HELOC now. Did your bank require your reasons for the loan? Thanks!

If anyone is looking for a HELOC, I got an offer in the mail through Third Federal Savings & Loan for prime - .76%. They are based out of Ohio and I am not sure which states they operate in, but they are in Colorado. I have never done a HELOC with them, but thought I'd pass along in case someone else is looking for a HELOC. I have never seen a rate that good on a HELOC.

Congrats man! I have a few properties that are paid off and have been considering pulling out the equity to buy more. Very motivating to move forward with it now. 

Hi Jake, thank you for sharing your story and experience with us, its very helpful. 

I wanted to ask you some questions about our situation based on your recent experience. What do you think we would qualify for in regards to HELOC loan, or if we could find a home loan for 250k to 300k covering 97%?

We finance/own three properties, live in one and rent the other two out to long term tenants, both of us have 780 credit scores, 1st property is worth $140k - owe 50k - monthly rent profit after sewer, water, garbage, mortgage, pool maintanace - profit $350 a month, 2nd property is worth 185k - owe 67k- monthly rent profit after mortgage is $700 a month, 3rd property is worth 275k - owe 237k - no monthly rent profit because its our primary residence. 

We have three accounts with three different credit unions. currently have 4k in savings, 10k in investments, a monthly income of $1640 not including rental income of $1050. 

We wanted to purchase a duplex for around 250k to 300k, live in one side and rent out the other and rent the house we are in now with a monthly profit of $500 after mortgage is paid. Could also double monthly profits by renting out other side via AIRBNB making $2800 a month or $700 weekly or $1200 monthly to long term tenant. 

We would need to finance the duplex at 97%, based on what we have available in savings 4k. Not sure what we could qualify for and what to apply for at this time? 

I'm thinking we may need to wait another year and save up to 11k to 15k for 3.5% down payment for an FHA loan. I'd like to not have to wait a year and make the move instead around January 2018 or February 2018. We're open to any ideas.

This purchase would also relocate me to be in the same area as my family. The move would also give us the extra $500 a month from current home renting and give my husband a better job market. 

It seemed recently when I went to apply for a HELOC loan through Chase Bank they made it seem like I couldn't use the loan money to purchase another property. Not sure what was said to me to think that, I just was under that impression - it wasn't possible. I kinda gave up on the idea until I read your post and it ignited my goal again.

Thanks for any help or ideas, they would be greatly appreciated,

Sherry S.

Bend Oregon

Thanks for sharing this success story. I've done a couple private second mortgages (note and deed of trust) on rental properties that I own, but I may look at a HELOC or something similar on latest house. We are currently doing a bunch of fixing up. We have a two year owner carry interest only loan at the moment, but we have to refi and pay out the owner by the end of the two years. Hopefully when we go to refi we can pull out cash, or we may look at doing a Fannie May Homestyle loan sooner, so that we can get all of the renovation/remodel stuff done, and wrap that expense into the loan.

My guess, the bank you'd go to for loan on new property will take the heloc monthly payment into account when doing debt to income math. If your numbers look good even with new house payments and heloc, then you don't have to worry. 

But if you are planning on using the rent from your current house as income, lender might ask for long term rental agreement and first month rent check to be deposit before financing the loan - happened to me. 

Originally posted by @Sherry Sprayberry :

Hi Jake, thank you for sharing your story and experience with us, its very helpful. 

I wanted to ask you some questions about our situation based on your recent experience. What do you think we would qualify for in regards to HELOC loan, or if we could find a home loan for 250k to 300k covering 97%?

We finance/own three properties, live in one and rent the other two out to long term tenants, both of us have 780 credit scores, 1st property is worth $140k - owe 50k - monthly rent profit after sewer, water, garbage, mortgage, pool maintanace - profit $350 a month, 2nd property is worth 185k - owe 67k- monthly rent profit after mortgage is $700 a month, 3rd property is worth 275k - owe 237k - no monthly rent profit because its our primary residence. 

We have three accounts with three different credit unions. currently have 4k in savings, 10k in investments, a monthly income of $1640 not including rental income of $1050. 

We wanted to purchase a duplex for around 250k to 300k, live in one side and rent out the other and rent the house we are in now with a monthly profit of $500 after mortgage is paid. Could also double monthly profits by renting out other side via AIRBNB making $2800 a month or $700 weekly or $1200 monthly to long term tenant. 

We would need to finance the duplex at 97%, based on what we have available in savings 4k. Not sure what we could qualify for and what to apply for at this time? 

I'm thinking we may need to wait another year and save up to 11k to 15k for 3.5% down payment for an FHA loan. I'd like to not have to wait a year and make the move instead around January 2018 or February 2018. We're open to any ideas.

This purchase would also relocate me to be in the same area as my family. The move would also give us the extra $500 a month from current home renting and give my husband a better job market. 

It seemed recently when I went to apply for a HELOC loan through Chase Bank they made it seem like I couldn't use the loan money to purchase another property. Not sure what was said to me to think that, I just was under that impression - it wasn't possible. I kinda gave up on the idea until I read your post and it ignited my goal again.

Thanks for any help or ideas, they would be greatly appreciated,

Sherry S.

Bend Oregon

I have been a TD Bank customer for 17 years. I have multiple mortgages and bank accounts with them and brokerage and IRA accounts with TD Ameritrade. I worked for TD for three years and eleven years prior to that with the bank that TD acquired. My point...I have a long-standing relationship with them.

I applied for a HELOC on my primary residence and after 2.5 months and 500+ pages of information sent to them, I gave up. I went to First Citizens afterwards and closed a HELOC in a week and a half. TD has excellent mortgage products but their process is awful.

I get my HELOCs through WF and they too are painfully slow and require a lot of unnecessary paperwork. But here is the good news. They often will give you a teaser rate for the first year, usually less than 3% although their variable rate is the pretty much the same as what you got. What I found out is that if I pay off the mortgage within that year I can call them and get another teaser rate. I work my HELOCs like I used to work my credit cards, playing musical chairs with balance transfers. This way I'm able to keep my interest rates really low. 

@Sherry Sprayberry - You might consider increasing your monthly income before purchasing additional properties (i.e. do not take on additional debt as you do not have an adequate amount of cash for funding). I'm not sure if $1,640/mo. is your net or gross figure, regardless that is quite low (generally speaking) with or without additional rental income. Honestly, it's pretty impressive that you were able to qualify for a loan on your primary residence given the level of your monthly 'working' income. I would mainly concentrate on significantly increasing your monthly 'working' income (if possible), and potentially bump up your savings a bit so that you don't have to C.C. finance any personal/business emergencies. 

@Megan Clancy I was just speaking with a BP member about my situation which is very similar to yours. One slight difference for me is that I do plan on remodeling my kitchen as I'll turn my current house into a rental one day. We were initially talking about HELOC's due to the flexibility you mentioned and here's what the investor said:

"Have you considered doing a cash-out refi instead? You'd have a lower rate than a HELOC, and a lower payment as well which would help your DTI and enable you to do more with real estate in the future. If you're interested in going this route, try www.better.com. They're the cheapest (no origination fees!) and fastest residential mortgage company I know.

If you refi up to 80%, you can pull out HELOCs above that (even up to 100%). Sound Credit Union can do this. My entire team has utilized Sound's 100% HELOC."

FYI - Sound Credit Union is in WA but you may find a local CU that can perform this as well.  Hope it helps.

Taj

I opened a TD account just because they had the free change machines that I could cash in from my coin ops. I didn’t have any of my operating accounts with them... initially. They roped me into opening one, so I gave them a shot but still kept everything with my main bank. Long story short, they were the mess you described. I closed the account and stayed with my long term bank. If you find the right bank, a HELOC can be a very simple expedient process. A good bank makes the process so much more manageable in so many scenarios. We both learned the hard way I guess.

Sounds like a success story to me ... and on top of that it has a happy ending.

Great success! Keep up the good work.

Looking forward hearing about more wins from ya.

I have a free and clear property. Why did you choose HELOC over refinancing ? @Jake Recz

Great story. I have a similar story with TD Bank, which used desktop underwriting, producing a very low value on a house we had renovated. We gave us on Navy Federal, while the rep wanted to pause our application at 42 days, because the time element made him look bad. That wasn't our fault, Mr Slow As Molasses. Another local credit union relationship was asking us to do a HELOC, but also used desktop underwriting, so the value was off.

We've now got a number of hard pulls on our credit, due in part to 3 full refi and 3 HELOC pulls, so I don't plan on trying this process again in the near future.

I just completed a HELOC with TD Bank on my free and clear residence located in Virginia and the process from start to closing took 3 weeks. My home is worth more than $750K based on comps, but TD Bank only qualified me for $200K because I'm retired and am only pulling in a retirement annuity and social security as income. While I showed them I had no debt, a stellar credit rating, and significant savings in IRAs, they based the approved amount simply on my ability to pay based on active income. Irrespective of this, their rate was prime less .76%; this is a HELOC at variable 3.49% for 10 yrs. Once I make my first draw, I plan to lock in this current rate; a process I can use twice during the 10 yr period. I can reuse the full amount in the initial draw at the locked in rate for as long as I want within the 10 years, never seeing an increase in the interest even if the Fed raises the interest lending rate. This is the cool part about using a HELOC. Now, all I need is to invest it in real estate with a return on the investment for more than the HELOC is costing me in Bank interest, and I'm ahead of the game.

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