HELOC In 3rd Lien Position Question

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HELOC In 3rd Lien Position Question

Michael Lynch
Investor · Buffalo, NY · Member since 2014 · 7 posts · 0 votes

I purchased a home 2.5 years ago utilizing the New York First Homebuyers Club which gives you approximately 8k in grants if you meet certain criteria, which I did. I purchased the home with a conventional mortgage and used the grant to help with downpayment and closing costs. 

The program stipulates that you MUST stay in the home 5 years or you lose a pro rated portion of that 8k. My home has appreciated significantly over the past 2.5 years and I am hoping to take equity out. I applied for a HELOC and when they ran the title it came up that the 8k grant is actually a second "soft" lien against my property that will go away after 5 years which prevents this bank from allowing me to have a HELOC. This was a DIFFERENT bank from the one my mortgage is in, I'm hopeful that works, but I'm not sure.

Has anyone ever had a similar issue to this? Does anyone know of a larger bank that does offer a HELOC or something similar IF it's in 3rd position?

I'm under contract for a nice double and was hoping to use part of the money for my portion of the down payment. Does anyone have any other creative ideas?

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  • Scott VanHee
    Denver, NC · Member since 2015 · 22 posts · 7 votes
    11y

    @Michael Lynch

    I don't know of any 'large' bank that would accept a 3rd position. I suspect that you'll have better luck with a local bank or private money, though it likely will still be challenging. The overall LTV (including all 3 mortgages) will be key and your selling point will need to be that the 2nd mortgage ($8k) will burn off in 2.5 years (based on your surprise that it was even out there, I'd recommend that you follow up in 2.5 years and ensure that it's been satisified, so that it doesn't surprise you again in the future).

    Does the $8k grant vest over the 5 years?  If so, do you have any paperwork that supports the vesting to be able to show a potential lender?  If it does vest, then the 2nd isn't currently $8k and the paperwork could further help your case.

    Other option is to completely ignore the equity in your residence and look for creative financing on the property you want to purchase.  Maybe seller holds a 2nd, maybe partner with someone, maybe get some F&F (friends and family) money, maybe offer a higher rate for the 2.5 years the 2nd is outstanding.  Best of luck!

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  • Marcus Hill
    Rental Property Investor · Nashville, TN · Member since 2016 · 22 posts · 2 votes
    6y

    @Michael Lynch Hi Michael, I am in the exact same situation as you were with a grant on my home in 2nd position that covered downpayment and closing costs, 20% being forgiven every year.

    I'm curious about what you ended up doing or if you found a solution. Did you find anyone that would do a HELOC in 3rd position?

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  • Justin Cothran
    Real Estate Broker · Port Saint Joe, FL · Member since 2017 · 9 posts · 5 votes
    2y

    @Marcus Hill

    Same position here. Did you ever find a solution for a 3rd position heloc?

    Thanks in advance.

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  • Marcus Hill
    Rental Property Investor · Nashville, TN · Member since 2016 · 22 posts · 2 votes
    2y
    Quote from @Justin Cothran:

    @Marcus Hill

    Same position here. Did you ever find a solution for a 3rd position heloc?

    Thanks in advance.

    No I didn’t. I actually ended up doing a 1st position HELOC and removing the mortgage all together. We had 5k left on the grant money that we still owed, but we ended up paying it through the HELOC. Made sense at the time.
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  • Ronnie Screen
    Member since 2023 · 1 post · 0 votes
    1y
    Quote from @Marcus Hill:
    Quote from @Justin Cothran:

    @Marcus Hill

    Same position here. Did you ever find a solution for a 3rd position heloc?

    Thanks in advance.

    No I didn’t. I actually ended up doing a 1st position HELOC and removing the mortgage all together. We had 5k left on the grant money that we still owed, but we ended up paying it through the HELOC. Made sense at the time.
    I was in your same position. The homebuyers program I went through wouldn’t allow me to just pay off the remaining lien they said I needed to refinance or sell the home. Can you go a little in to how you were able to pay the loan with the HELOC. I’m wondering if that’s an option for me but I would like to know how you did it.

     
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