HELOC's - What should Private Investors Know Before Using One?

Question

We have been approached by someone who wants to use a HELOC to loan us funding for our acquisitions. Are there any good links or websites I can share with them to educate them on the pro's or con's to doing so?

Corey Reyment · Answer

Account Closed thank you!

Joshua Fulenwider · Answer

@Carrie Reyment

http://files.consumerfinance.gov/f/201204_CFPB_HEL...

The link above takes you to a PDF circulated by the Federal Reserve.  As a lender I provide this to every person applying for a HELOC.  It's pretty basic but it can help people understand the terms and conditions that go along with a HELOC.

Paul Higbie · Answer

Key thing for them to remember is that they are putting their home at risk for investing.  May or may not be a good thing but having that perspective might give one pause.....

Howard Lawton · Answer

It depends on perspective here.

From their perspective,

I believe they get the tax deduction for the interest and need to be able to pay their monthly payments on an ongoing basis. This minimum payment is substantially different from bank to bank.

Another issue is interest rate.  A HELOC is harder to get these days and the rates from larger banks are much higher.  For example, being Chase customers we always get 4.5% offers which is way high for me (before the Fed raised).  We can get 2.99 (now 3.24 %).  Also, since the housing crunch my bank no longer caps rates like they used to. Lastly, unless it's a fixed loan and not a line of credit the rates will rise in the next year(s).  March will probably go up .25%.

How will they be securing the loan?  Will the property be in their names?  An LLC?  Will they take a mortgage against any entity to protect themselves?

Just some things to consider.

From your perspective

Assuming they are financing and somehow securing their money.....it makes no difference as long as it is funded.  You're issue is more of an Agreement in some form or fashion as to how any business or partnership will be run (are they passive?)  and profits and/or losses addressed.

Good Luck!