Basics of Home Equity Loans

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I’m about to attempt to pull out a home equity loan to fund my initial multifamily investment. For those of you who have done this before, would you mind sharing your insights on what I should expect?

Did you try to start building a relationship with lenders before you applied for the loan?

What LTV did you get on the home equity loan and how recently was this?

Did you use a local lender or a larger national lender? I would think that you’d want to find a local lender.

Once you got approved for the home equity loan, did you get the cash immediately or did the lender want you to identify your investment first?

Did your lender require you to hold any reserve accounts at the bank?

In identifying an investment property, what spread were you looking for? If you borrowed at 6%, were you looking for an 8% return on cash? 10%? 15?

What mistakes did you make in the process? What pitfalls should I avoid?

Thank you!

Hi @Nicholas Leone ,

HELOCs are one of the most common "first down payment on a rental property" sources here in the Bay Area.

Unlike the Fannie 30YF stuff, terms/rates/LTV/etc vary quite drastically by lender. In general great rates will be lower LTV, maxed out LTV is going to come with a higher rate.

Often times your existing bank or credit union will give you a better deal because of the existing relationship. 

HELOCs often close a LOT slower than the conventional 30YF stuff. So the best strategy is to get the HELOC open and ready, then go seek preapproval for the purchase mortgage. If you wait until you identify the property, someone else who already got their ducks in a row is going to snatch it up before you're even done applying for the HELOC.

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