HELOC equity automatic?

Question

Is the HELOC equity automatic in the property to use for the BRRR on the next property once you own it? After one year of owning and renting out the property with a tenant.

Today, I spoke with a local bank loan officer telling me that's not how it works. I think it was because her bank doesn't do it.

Aaron Poling · Answer

I am not 100% sure I understand the question, but will attempt to answer what I think your asking. A Heloc would be an equity line that you could get to tap into equity on a property. Most lenders won't do equity lines on investment properties as they see it as too risky. Not saying that no lenders will, but the lenders I work with won't and I think that is pretty common. In most cases the best option to tap into the equity is to pull a cash out refinance, that would pay off the current mortgage and give you cash above the payoff. In my experience you have to own the property for atleast six months, and they want to loan no more than 75% of value.

Hope this help! Thanks Aaron

Andrew Garcia · Answer

@Jerry Garay, it is a good idea for many people, however, each scenario is different. There is no one-size-fits-all.

The issue with doing a HELOC is that you are trading in one revolving credit line for another with a lower interest rate. HELOCs are almost always adjustable-rate loans. Therefore, if you do not intend to pay it off in a relatively short period of time, you could end up paying double-digit interest rates.

Additionally, if your goal is to lower monthly payments, a cash-out refinance is almost always the way to go.

However, neither I nor anyone else will be able to advise you on which way to go until we are familiar with your specific scenario.

Please let me know if I can be of any assistance.

Andrew Garcia · Answer

Hi @Juan David Maldonado, as the others said, the question is not crystal clear so I will try my best to answer it.

You presumably will have equity in the property after a successful BRRRR. You can access that equity with a cash-out refinance, a HELOC, or a second mortgage (or a combination).

You do not need to wait one year but each lender is different.

Hope this helps! Let me know if I can be of any assistance.

Jerry Garay · Answer

Hey. Im working on my first property. Turned a home into a duplex. Is it still a good idea to do this when I got the original mortgage when interest rates were and rock bottom and my cash out refinance mortgage loan would be at a much higher rate? I took out a log of high interest loans and credit card dept in the rehab process that I am looking forward to paying off.

Corby Goade · Answer

I'll take a stab at your question too, not being 100% clear on what you are asking either....

You can use a HELOC for whatever you like. Lenders will always ask what your intention for the money is, but I've never had anyone question me when I said I was using it for investments in real estate or improving my property. I can't imagine there's a "better" use- they probably don't want to hear that you are buying a Tesla or taking your family to Disneyland.

Let me know if you can clarify your question and I'll help as best I can.

Matt Devincenzo · Answer

I'm not clear on what question you actually asked, and how you may think the loan process may work. But nothing in the loan process is 'automatic'. If you get a HELOC the amount will be based on an appraisal at that time, and as you gain equity the loan amount does not increase. So maybe that is the answer to your question, no you don't have access to that equity after a year unless you get a new loan.

HELOC equity automatic?

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