New to Real Estate · Atlanta, GA · Member since 2020 · 4 posts · 3 votes
Hello Everyone!
I bought my first house a year ago and I have been house hacking by renting the two extra bedrooms on AIRBNB. I have gotten some advice that it would be a good time to get a HELOC on the property before the market crashes. I don't quite have enough saved up yet to buy my next property comfortably but I would like to have access to re-use the large downpayment I put into this house when I buy my next property in a year or so.
I would love any advice about HELOC vs Cash Out Refi (I'm leaning towards HELOC). And how to find a good bank to do the HELOC. I don't know what questions to ask or if I'm allowed to not use the credit with out penalty. The two companies I have talked to are BofA and Figure.
@Audrey Easton if you are just looking for a HELOC on your own, primary home that should be pretty easy to find. Who you have your checking/savings account should have a product for you. I would guess that if you bought your home 1 year ago that your interest rate is rock bottom....so I would absolutely NOT recommend getting a cash out loan (unless there is no other option). HELOC should be the right direction to go in to start. HOWEVER....just to provide some differences here I've put 2 pointers below for reference:
To me there's a couple of main points of difference between a HELOC and a Cash Out Mortgage:
1. HELOCs have low costs
2. Mortgages are fixed Rates
What this means is that a HELOC is NOT designed to be a permanent financing solution. Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. Rates are increasing now...so what will they be in 5 years? it is likely that your rate will increase in the future. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC for 10 years it will cease to be a HELOC. It will "mature" into a 20 year, fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.
However, if you use it to say....buy another property. Then flip that property...thus paying back your HELOC. Then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.
On the other hand, if you were going to use that Line of Credit for the downpayment on a property that you were looking to buy and hold for 30 years....this would be very counterproductive. The 30 year fixed rate loan would be a better fit for this purpose.
You might be able to think of some other scenarios but hopefully this concept is good enough to know the difference between the two. Thanks!
@Audrey Easton if you are just looking for a HELOC on your own, primary home that should be pretty easy to find. Who you have your checking/savings account should have a product for you. I would guess that if you bought your home 1 year ago that your interest rate is rock bottom....so I would absolutely NOT recommend getting a cash out loan (unless there is no other option). HELOC should be the right direction to go in to start. HOWEVER....just to provide some differences here I've put 2 pointers below for reference:
To me there's a couple of main points of difference between a HELOC and a Cash Out Mortgage:
1. HELOCs have low costs
2. Mortgages are fixed Rates
What this means is that a HELOC is NOT designed to be a permanent financing solution. Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. Rates are increasing now...so what will they be in 5 years? it is likely that your rate will increase in the future. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC for 10 years it will cease to be a HELOC. It will "mature" into a 20 year, fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.
However, if you use it to say....buy another property. Then flip that property...thus paying back your HELOC. Then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.
On the other hand, if you were going to use that Line of Credit for the downpayment on a property that you were looking to buy and hold for 30 years....this would be very counterproductive. The 30 year fixed rate loan would be a better fit for this purpose.
You might be able to think of some other scenarios but hopefully this concept is good enough to know the difference between the two. Thanks!
Go with HELOC and look at local community banks for example here in Atlanta Delta Community Credit Union would have better rates on HELOC compared to BofA so look around at local credit unions.
Great discussion so far, I came across a HELOC product in Atlanta that I haven't seen somewhere before and wanted to get your opinions. The HELOC is a 30 year loan with a ten year draw period. During the 10 year draw, the borrower has 3 opportunities to fix an amount they draw if they would like to. Once the draw amount is fixed, the drawn amount converts into an amortizing 30 year loan.
What are your thoughts on this type of product? It seems to have the benefits of not adjusting my primary mortgage loan to todays higher rates but also avoiding a variable interest rate on the HELOC. Am I missing something?
I was considering taking out a HELOC for a down payment and fixing the loan amount. So I would have a primary mortgage, take out the HELOC and fix it for a down payment, a mortgage on an investment property, and a line of credit to draw on for another down payment potentially.
I would go with the HELOC as some banks aren't doing cash outs now and your points will be higher with a cash out. Check out Associated Credit Union. They were doing 0 points earlier this summer. Plus with any credit union you don't pay Ga Transfer Tax saving you a couple of hundred dollars based on the size of the loan.
Will DCCU do a HELOC on an investment property in Los Angeles. The only credit union that I can seem to fid to do them is Quorum credit union in New York. There was one criteria that I did not pass though...you have to 5 years no missed payments. 4 years 6 months ago, somehow something slipped with the auto drafting and I got a 30 day notice, so it kicked me out of the race. Rather than wait 6 months, looking to find another credit union that will assist.