HELOC soon after purchase with FHA 203k loan - is it possible?

Question

I'm considering making a fixer upper home purchase using an FHA 203k loan type to leverage a 3.5% downpayment. The rough details are:

• Purchase price: $320,000• Close date: 5/30/22• Est. reno costs: $105,000• Reno completion: 7/30/22

Within 6-8 months of the renovation I would like to be able to take about $40,000 out as a HELOC for downpayment on an investment build. Would this be possible? If not, is there anything I can do to make it happen like refinance into a different loan type, etc. - do I have any options? Happy to provide additional info / context if it would be helpful.

Scott E. · Answer

The issue with getting that HELOC in 6-8 months is that most lenders are not going to give you a new appraisal. They'll want to wait until 1+ year after the purchase of your new home. Call a broker to confirm.

This means if you go for a HELOC in 6 months, they will use your purchase price for value. Which means you won't have enough equity to take out a $40k HELOC.

Sam Horton · Answer

@Alex Chennault Most HELOC lenders will only allow you to pull out 80% of equity from the primary residence. There are some that will go higher, I used a credit union in Massachusetts that allowed for 100%. Assuming the lender you go with allows for 80% essentially you would need to make sure you have 20% equity in the home + the $40K that you are looking to leverage. What kind of ARV are you looking at after renovations are completed?

Sam Horton · Answer

It's not impossible but would require some leg work. The credit union I used lent to me within 1 month of a refinance for my residence however they may have looked at this differently because I already owned the home for two years. Good luck!

Alex Chennault · Answer

@Scott E. @Sam Horton thank you both for the valuable info & insight! Seems like I may need to re-work some plans..

Sam Horton · Answer

If it's a true $475K ARV then I don't think the numbers work for a HELOC, at least not right away.

$320K Purchase + $105K Reno = $425K

Less the 3.5% down ($14,875)  which would be $410,125 (borrowed)

ARV $475,000 ($410,125) = $64,875 equity or roughly 14%

You would have to try and find a local lender/credit union willing to go up to 100% equity and to @Scott E. point you would want to check to see if they would lend within the 6-8 months of purchase.

Alex Chennault · Answer

I would say after the all-in purchase price and renovation at $425,000, ARV should be $475,000 at a minimum.In addition to cosmetic upgrades (nice but nothing crazy), we will be replacing the roof, furnace, adding mini-splits, replacing appliances, etc.

HELOC soon after purchase with FHA 203k loan - is it possible?

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