HELOC Example help

7 Replies

New to investing and do not have tons of cash. My wife and I plan on buying a fixer upper with medium repairs needed for ourselves to live in for atleast 5 years. I want to give examples of numbers and can someone tell me how that would affect my monthly payments?

We buy property A for $100,000 with 20% down and have a $500 monthly conventional mortgage. We rehab with cash and the value of house increases to 250,000. This would mean we have $150,000 in equity of property A, right?. Would that mean that we could then use a HELOC to put a down payment using a conventional loan on property B for $150,000? Depending on our HELOC rate, would that basically increase the mortgage on our first home or would all payments stay the same?

How would this change if we used a FHA owner occupied loan? Can you get equity from property A before the owner occupied period is up?

When I did a heloc, they only lent up to 75% of appraised value. It's unlikely they will lend you 100% of appraised value between the 2 loans. They will want you to continue to have skin in the game. Since you have an existing 1st loan, that gets deducted from the 75% give or take of appraised amount. I would assume that only 187.5k (75% of 250k) will be available for you to borrow, so you'll only likely get 87.5k from your HELOC. You can always call a credit union or bank you like and ask them what they would pay on your proposed loan scenario. You will definitely have a separate payment schedule for your HELOC on top of your existing loan, so expect the HELOC payments to be much higher since they tend to have shorter repayment periods. They are completely different loan payments and HELOC payments will be dependent on repayment period that bank offers and interest rate. Your loan officer would give you more definitive answers.

I agree with Jeff, except it seems, according to your example, that your outstanding mortgage would only be $80,000 (since you put $20k down.). I just recently got a HELOC on my primary home to use as a down payment and Key Bank loaned up to 90% of appraisal value, minus my outstanding first mortgage amount. I was told their lending guidelines are based on credit scores and debt/income ratio so YMMV. I would recommend Key to anyone looking into a 2nd/HELOC.

Thanks for the replies! So I would want to take into account the HELOC payment & mortgage on property B to ensure I am getting enough cash flow if I am holding and renting? It seems like it would be pretty hard to find a good enough deal to cover both.

That's kind of the whole point of finding a good deal. A good deal as a buy and hold, means one where the rent payment covers the loan against it plus taxes, insurance, maintenance, CAPEX and (from my perspective) an "Oh damn" surprise fund. And this property should still provide what you think is a reasonable cash flow after all those factors are taken into account. Otherwise, keep looking.

How would this change if we used a FHA owner occupied loan? Can you get equity from property A before the owner occupied period is up? I plan to do this in Atlanta.

@Paul C. on Property "A" you can request a HELOC after all of your updates and then have that money available to you, this is essentially your money and you can use it for what ever you would like. If you use it to by Property "B" either as a rental or new primary you would just want to make sure you have the ability to cover both payments Original "A" Mortgage and HELOC on "A". And if possible you would want to find a deal that you could do the same strategy to but instead of taking a HELOC on the second (property "B") you might consider Refinancing and pulling equity out to pay off the original HELOC on Property "A" so you could potentially rinse and repeat.

@Paul C. I won't re-hash what has already been said in the above. In Atlanta look for small community banks for example Georgia's Own Credit Union you will get HELOC up to 90-95% of appraised value.

Good Luck