Looking to get a Home Equity Line of Credit (HELOC) in MA

16 Replies

Hi All, 

I have owned my owner occupied 3 family property for around 2 years now, put in a bunch of work on it and am looking to get a home equity line of credit on it while rates are still low and property values are high so that I can use it for a combination of future repairs and possibly to go toward a down payment on my next investment.  

Does anybody have any tips on the process of getting a HELOC or recommendations on lenders to go through? Is it best to go through a local lender with the thought of establishing a relationship for future deals?

Details on the property: 

Purchased for $400K

Renovation costs of approx. $40-50K

Current loan: approx $390K

Estimated value based on comps: Approx. $550K

Based on 80% LTV, house would need to be over $488K ($63K equity line of credit).

Based on 90% LTV, house would need to be over $433K ($117K equity line of credit).

I have essentially no personal debt other than the property and the property cash flows approx $100/month. 

Side note: I have refinanced 2x in the past year and on the most recent appraisal at the beginning of spring, my house was appraised at $500K, but one of my tenants at the beginning of the summer purchased a 3 family almost identical in stats to mine for $540K and based on MLS have seen similar values, so that's how I am coming up with the $550K value estimate.

Thanks!

Dan

Originally posted by @Dan Borecki :

Hi All, 

I have owned my owner occupied 3 family property for around 2 years now, put in a bunch of work on it and am looking to get a home equity line of credit on it while rates are still low and property values are high so that I can use it for a combination of future repairs and possibly to go toward a down payment on my next investment.  

Does anybody have any tips on the process of getting a HELOC or recommendations on lenders to go through? Is it best to go through a local lender with the thought of establishing a relationship for future deals?

Details on the property: 

Purchased for $400K

Renovation costs of approx. $40-50K

Current loan: approx $390K

Estimated value based on comps: Approx. $550K

Based on 80% LTV, house would need to be over $488K ($63K equity line of credit).

Based on 90% LTV, house would need to be over $433K ($117K equity line of credit).

I have essentially no personal debt other than the property and the property cash flows approx $100/month. 

Side note: I have refinanced 2x in the past year and on the most recent appraisal at the beginning of spring, my house was appraised at $500K, but one of my tenants at the beginning of the summer purchased a 3 family almost identical in stats to mine for $540K and based on MLS have seen similar values, so that's how I am coming up with the $550K value estimate.

Thanks!

Dan

Tips: I would say call around to your local banks first - I started with the smaller banks and then called Wells Fargo only because I currently bank with them (for reasons of needing a local presence for my MD rental). I choose PNC while they are not just local but had the best "talk" up of what they offered. Now WF is coming back because I told them I didn't want to pay closing or annual fees as that was a deal breaker. Anyway, start with the locals and it doesn't hurt in the process of using this to establish a point of contact for future investing.

Also, I asked a bunch of question regarding the rate structure, payments of P&I or just interest only, any other fees they may have and restrictions. Someone suggested asking about restrictions because you want to use it for investment property and they may restrict to primary use only. Just a thought. Good luck. 

@Dan Borecki ,

Really it boils down to shopping around for the best rate and terms. I would pull out as much as possible even if it is at a higher rate. If you plan on staying local and investing in your area I would consider slightly less favorable rate or terms in the name of establishing a relationship with a local bank. That relationship could be worth significantly more than .25% on the rate. But beyond that I have always gone with whoever offered the best rate and terms.

@Daria B.@Edward B.

Thanks for taking the time to give me your input! 

I will definitely shop around at my local banks first and will need to weigh the options against building future relations. Good points by both of you on really digging into the terms/restrictions before committing to anything.  

I was talking to a local lender yesterday and they only do 75% LTV, but the only fee that would be charged to me would be the $550 appraisal and the $175 recording fee. Are those terms consistent with your experiences, or have you seen 80%+ LTV? I was hoping for the 80% LTV since that would give me an additional $28K LOC to work with assuming a $550K appraisal.

@Dan Borecki

Glad I could contribute. I'm still learning a lot myself. Years ago, and I mean many years ago I had an LOC on my primary while I lived there to finish the basement. And I don't recall having to do this much research. LOL Things have changed.

To answer your question, most of the lenders I spoke with said 80-85% LTV and only one said 70%. And "all" said no costs (appraisal, closing, survey, etc) to me. The stipulation was that I had to keep the account open for 2 or 3yrs (depends on lender), otherwise I would have to pay the closing costs. Find out about this because one lender did say that all I would need to do was keep it for the 2 yrs + 1 day and then I'd be free and clear. Just because you have a balance or not makes no difference, they are looking at the open term.

Also, the interest structure seem to vary.

1st lender said all draws are prime + their internal rate margin (based on credit report, LTV, DTI)

2nd lender said on 1st draw only at 2.99 until 1/2017, remaining draws are prime + their internal rate margin (based on credit report, LTV, DTI)

3rd lender said all draws at 1.99% (available possibly until end of year) for 1 year, all draws after are at prime + their internal rate margin (based on credit report, LTV, DTI). Downside on the 1.99 is that the clock starts ticking when the account is open. They also said they would drop .25% if I had an account that would pay directly into the LOC.

I was ready to pull the trigger and yet another local bank, Regions, said they would allow my investment property to be used rather than my primary. WOW! So, needless to say I am now trying to find out what difference this will be to that of the PNC Bank I was going with. I would rather use my investment property because it's worth more.

I'm also researching PI verses I (interest only). I'm not sure if that matters to you.

@Dan Borecki ,

The last HELOC I got was in 2010 and things have changed a lot since then. My other ones were before the crash and those terms are definitely not available anymore. The last one though, was 90% LTV at prime plus whatever to make it 5.74% interest. It is a ten year draw that they will review every ten years to determine if they will continue it. I am not certain about the amortization period off of the top of my head. It cost me between $400 and $500 to open and there is no annual fee.

I hunted for a HELOC in 2012 on a home that I owned free and clear but things had changed so much that I was unable to secure one. I did not, however, shop around aggressively. A mistake that I have learned about here. I would think that if you shopped around you could find better terms than the ones you listed.

Ed

I took out a HELOC with a local credit union, and it worked very well. They were able to finance up to 100% of the equity, as long as my credit was good. Developing personal relationships with local banks and credit unions is key.

Dan-

Checking to see if you were able to secure your HELPC?

Mine has been approved through a local bank at 80%LTV. No closing costs or appraisal costs, unless I close the account in less than 24 months. Banker was very nice and we kept in touch through the whole process. I've since asked about their other loan products and am getting another source dealing with that side.

My appraisal came back and I thought it would be higher. I am going to speak with the banker because the appraiser noted a comp'd home as "superior" to mine because of renovations. My home has been extensively renovated so I object to the other home being superior when mine is at the same level. And the appraiser just did a drive by and took exterior pictures.

I sent the banker an email and will have to wait until Monday to speak with them.

The up side is still that I was approved before the appraisal because of my 820 credit score so she said the appraisal was just to set the % of the LTV for the line.

Good luck and I hope you were able to find a good local bank.

HELOC...gesh auto correct

@Dan Borecki

Tried to post this from my phone but the app doesn't allow for the @? to be placed into the post.

@Edward B.   @Pete Sailhamer @Daria B.  Thank you all for the great feedback and sorry for the delayed response!  I am just about to get the ball rolling on this process again. I got delayed with my full time job, working on my 2014 tax return that I had filed an extension for and just had some plumbing work done the past few weeks and got a MassSave home energy audit this past weekend. The fun never ends! 

It's great to hear the 90-100% LTV that you guys were able to get. I just made a list of about 30 local banks and credit unions and am going to start chipping away at calling them all over the next few weeks.

@Daria B. - are you going to go with that 80/20 LTV HELOC? Regarding the drive by, that was one thing I was worried about with the one lender that I had spoken to. He had given me the option to do a drive-by or a full appraisal. The full appraisal would have been around $500, while the drive by was free, but I personally would want to go with a full appraisal for my property since the quality of my units after all of the work done is much better than the average comps which I would most likely be compared to in a drive-by appraisal.

@Pete Sailhamer - How many credit unions did you have to call before you found one that would do the 100% financing? Is that something you negotiated or were they already offering that option. 

@Dan Borecki

Yes, I will take the 80% HELOC. It's still a good deal. I can do 10 draws and lock in at 2.75%. Initially, if I use the first draw before 12 months it will be at 1.99%.

We are still ironing out the final details as I've not gotten what they will dictate as their internal rate on top of the prime. It should be good since they base it on my credit score that came back and was excellent.

The wrinkle is the BPO (broker price opinion) or drive-by appraisal as it were. I didn't have a choice as this is what they do. I disagreed with the appraised value as they compared the "outside" of my property to the outside AND inside of the comps and said they were superior. Really?!? Come on....

So the bank said to send them my list and I did...

all the internal fixes (i.e. All new systems HVAC, W/H, repluming, new windows and doors and hardwood flooring) with cost and dates. 

While I got over $100k for the line, I'd like for it to be based on a fair assessment so if I get more, the better.

It actually took less time to complete. The funny thing is that when I was reading through the appraisal looking at the pictures, my car was in the photo! I was home when the appraiser came by and didn't know it. :)

All in all, it was no cost so when you shop around be sure get all those details. There has to be one that won't charge for appraisal. As long as I keep the account open for 2 yrs, I won't be liable for the closing costs.

Keep us up to date on your progress.....

@Daria B. congrats on getting the HELOC almost completed. That will be huge to have $100K available to you at such a low rate. Is that rate just for the first 10 draws and then it becomes a variable rate or how will that work? What type of property do you have (Single fam or multi fam)? I would be frustrated in your shoes too since it sounds like you put in a ton of work and want to be rewarded fairly for that in the appraisal.

@Dan Borecki

The 2.75% rate is icing on the cake as the lender told me this "after" all our conversations. (haha) They call it a "line in a credit". I can do 10 draws and lock in at 2.75% that will be a fixed rate and I must tell them I want to do this just before I do the draw.

The  prime rate kicks in if I don't do the "line in a credit" or am out of that option as I can only do that 10 times.

It's on my primary residence as I could not get it on my investment property that was worth more. My primary is paid off so this is good. The bank didn't have a presence in that state (darn it!) so they could not use the investment property. And it was the "1st" bank that I ran across after calling so many that would DO the HELOC on investment property. All others said nope, it has to be primary.

Yeah I was a little nervous dealing with the appraisal but over all the lender made this a very smooth process.

I'm glad to hear it went so well for you.   The 10X at such a low rate is a great option to have.  You'll probably want to save those draws at the low rate for down the line since the rates will inevitably go up or at least use when you have bigger draws.  Is that what you were thinking? 

It was actually the first bank I talked to.  They were the local credit union that I was already using, and after striking up a conversation and mentioning what I was looking for, they were happy to offer their funds to lend to me.  I can't say it will work like that every time, but it did this time.

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