Second lien / HELOC question

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Second lien / HELOC question

Ian Fisher
Member since 2022 · 5 posts · 1 vote

Hi - have done a lot of real estate investing but find myself back to square one when it comes to financing primary residence. I have a first lien lined up at under 5% for 70-75% LTV. I could do up to 90% at 9.5%. In both cases non-QM / bank statement based, since as an investor my tax returns show negative AGI. >$2MM purchase price. Rationally it'd make sense for me to pay 12% or more all day long for the slice from 70/75% to 90%+ and my blended cost still comes in lower than 9.5%. Any ideas? Would need to be done as a refi, as my first lien lender has no issue with it but can't put it in place at closing (so we'd use cash and then refi back out soon after closing).

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Javier Mercado
Lender · Boca Raton, FL · Member since 2017 · 35 posts · 15 votes
3y

So I understand this correctly, your lender will not allow you to get a piggyback heloc at closing to supplement the downpayment?

Most nonQM lenders will have a combined LTV Max of 90% for a primary purchase. If loan amount is greater that $2M then likely 80-85% would be the max because the size of the loan.

I would shop around with some mortgage brokers and confirm the lender guidelines on CLTV.

If you're purchasing cash then refinancing (delayed financing), the HELOC would have to be done second after the first cashout loan closes, but you would have to also check seasoning requirements for getting a HELOC on a property just acquired. Some lenders require 6 months. Depending on your plan for the cash it may be worth getting as much as you can on the initial cashout and take a slightly higher fixed rate.

Hope that helps!


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  • Javier Mercado
    Lender · Boca Raton, FL · Member since 2017 · 35 posts · 15 votes
    3y

    So I understand this correctly, your lender will not allow you to get a piggyback heloc at closing to supplement the downpayment?

    Most nonQM lenders will have a combined LTV Max of 90% for a primary purchase. If loan amount is greater that $2M then likely 80-85% would be the max because the size of the loan.

    I would shop around with some mortgage brokers and confirm the lender guidelines on CLTV.

    If you're purchasing cash then refinancing (delayed financing), the HELOC would have to be done second after the first cashout loan closes, but you would have to also check seasoning requirements for getting a HELOC on a property just acquired. Some lenders require 6 months. Depending on your plan for the cash it may be worth getting as much as you can on the initial cashout and take a slightly higher fixed rate.

    Hope that helps!


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  • Ian Fisher
    OP
    Member since 2022 · 5 posts · 1 vote
    3y

    Yes, all correct. I can get 90% in a first lien at 9.5%, or 70-75% in a first lien at 70-75%. If I do the second, I can put as much as I like behind that, post closing, and on a blended basis am still much better off at any reasonably possible interest rate for that second when blended with the first at 5%, vs. one tranche at 9.5%. Looking for lenders who would do this.

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  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 510 votes
    3y

    @Ian Fisher, to clarify you are looking to do a first lien at 70-75% at under 5% and then you want to find a lender who will do a second mortgage for the remaining LTV up to 90%? Do you have a property in mind and what state are you in?

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  • Ian Fisher
    OP
    Member since 2022 · 5 posts · 1 vote
    3y

    Possibly yes. Currently I have the following options available:

    - 90% at 8%

    - 70-75% at 5-6%

    So I'm interested to learn whether there are other options that would get me to the same total 90%+ leverage and a lower blended cost of capital. I don't have a property under contract just yet, but will do so as soon as I finalize a path on financing; it will be a $2-2.5MM purchase of a primary residence in the Chicago suburbs.

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  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    3y

    HEy @Ian Fisher - Seems to me that 90% at 8% is the way to go. Being that you are a seasoned investor I am sure you can make a good return on the extra money you can take out. If you do 70%, I know First Midwest used to go up to 90% on their HELOC and they are local here.

    Which Chicago suburb are you in?  I am from Elgin, but live down in logan square now.

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  • Zack KarpPro Member
    Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
    3y

    @Ian Fisher if you can get the entire 90% at 8%, grab it.  That's really good in this market right now for a non-QM at 90%.  Just make sure there are no surprises, like points or insane fees, or a 3 year prepayment penalty.  Make sure you have an exit if you either become financeable for a standard jumbo loan, or if rates drop so you can refi.  Better to take a slightly higher rate with no PPP, imo.

    Best of luck!

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    3y

    @Ian Fisher I would just make sure you really are set up well to utilize the capital. A 9% return for an investor is pretty good, and when you are creating the 9% return for a note investor... yikes!

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