Looking for first deal — HELOC + Pre-approval, what comes first?

14 Replies

We are in the process of searching for our first deal. (Looking for SFH or duplex for under $100k, with under $30k in rehab needs) We plan to take out a HELOC for the down payment and initial rehab costs. Would love to find an owner financing deal, but realize that may be too good to be true. So assuming we will attempt to get a conventional mortgage, what order should we do things... pre-approval and then HELOC, or vice versa, at the same time (if we went through same bank), or does it not really matter? Additionally, since we are looking for fixer uppers, in what conditions would a bank not cover a house with a mortgage? (Other than the minimum $50k)

HELOC first.

It needs to be a basically complete and functional home. For example a dated kitchen with walls yellow from cigarette smoke and a 60 year old oven is fine, a kitchen that you can't cook food in is not fine -- even if it is otherwise modern, new, and clean. 

If the difference between a HML and normal mortgage is an oven, it'll make more sense to toss an oven in than to take out a HML.

@Allie Dattilio I agree with @Chris Mason .

Get your HELOC in place. Most HELOC lenders in our area will go to 90% of the value of the house less your 1st trust balance if you have one. There’s a few that will go up to 100%. While that my give you full access to your equity, give it some thoughts beforehand.

There is one particular FCU in our area that I know will go to 100%.

Originally posted by @Allie Dattilio :
@Chris Mason

Regarding mortgage— who/how do they decide what is livable/functional-- appraisal? Is there room for negotiation or compromise?

 Appraisal, and nope not really. The appraiser is the eyes of the underwriter, and if he says the 5 foot ledge with no fence is a safety hazard, then you (or the seller, or one of the agents, etc) are putting a fence up that'll make the appraiser happy. There's room for you and/or your agent to sell the functionality, though. Make it right before she shows up. I wasn't kidding about that "toss an oven in" idea, I've had people do that the day before the appraiser shows up.

If it's right when the appraiser shows up and looks like it's been that way for years, they generally will not question who did the work provided it appears to have been done in a "workmanlike manner" (this is common in the east bay where the housing stock is 100+ years old). If it's not right and needs to be called out, don't be shocked if people need to see the plumber's license if it's a plumbing thing, and so on, which can add to costs. 

get the heloc on your present home in place first so you have it to use as needed ..the payment from the HELOC wont be included in dti ratios unless there is a balance outstanding ……..also get yourself pre approved for the financing for the purchase of the next property using the hypothetical purchase price / loan amt you want to target and also with using the potential HELOC payment in the mix to make sure all is OK for approval

Wouldn't it make more sense to get the pre-approval first that way when he identifies the target property and puts an offer in he can tie it up, do 14 or 21 day loan contingency and use that time to secure the loan? Otherwise if he gets the HELOC he will be making payments when he hasn't even identified the property yet. Am I right or am I missing something?

Originally posted by @Michael S. :

Wouldn't it make more sense to get the pre-approval first that way when he identifies the target property and puts an offer in he can tie it up, do 14 or 21 day loan contingency and use that time to secure the loan? Otherwise if he gets the HELOC he will be making payments when he hasn't even identified the property yet. Am I right or am I missing something?

 You are missing a LOT!

HELOCs take for-freaking-ever to close for average creditworthiness people. The underwriting for a 2nd position mortgage is 2x as conservative as a 1st position mortgage, due to risk (HELOCs are in 2nd position). Frequently the REI/consumer applies to 3 or 5 different HELOC lenders before a credit line is actually opened -- the better rate HELOC has higher standards, so REI/consumers go through this time-exhaustive exercise of getting denied a bunch because the 4 best rate HELOC lenders denied them, it's not until the 5th that it's approved and open. The person taking the HELOC loan app isn't a full time loan originator, they are a minimum wage bank teller on welfare and food stamps with a NMLS or NMLSR, so they just tell the consumer "oh that's great! it'll be fine!" even though the person has a 0.00% chance of being approved (in the off chance that it does, maybe there's $250 in it for them... but it costs them $0 if it doesn't!). So, a month each with the bank teller, times five. I see that you are a real estate agent. Will your client on your current listing wait around in escrow with all contingencies in place for six months while the buyer mucks about with this HELOC nonsense? If they will, then frankly you should probably fire yourself and tell that seller to work with an LA listing agent that I'll happily refer them to. :P

Also, why would you be "making payments" on a HELOC with a balance of $0? No matter the interest rate... $0 times anything is... $0.

Getting the HELOC is essentially just a hack around saving up a down payment. You need the down payment/HELOC before being preapproved. How can you get preapproved with no down payment? If you were to refer me a client, do you want me preapproving them and telling you they are good to go when in reality they have $0 towards any form of down payment and can't even afford an EMD or appraisal fee, much less lunch? 

HELOC, or save a down payment, first.

Originally posted by @Chris Mason :
Originally posted by @Michael S.:

Wouldn't it make more sense to get the pre-approval first that way when he identifies the target property and puts an offer in he can tie it up, do 14 or 21 day loan contingency and use that time to secure the loan? Otherwise if he gets the HELOC he will be making payments when he hasn't even identified the property yet. Am I right or am I missing something?

 You are missing a LOT!

HELOCs take for-freaking-ever to close for average creditworthiness people. The underwriting for a 2nd position mortgage is 2x as conservative as a 1st position mortgage, due to risk (HELOCs are in 2nd position). Frequently the REI/consumer applies to 3 or 5 different HELOC lenders before a credit line is actually opened -- the better rate HELOC has higher standards, so REI/consumers go through this time-exhaustive exercise of getting denied a bunch because the 4 best rate HELOC lenders denied them, it's not until the 5th that it's approved and open. The person taking the HELOC loan app isn't a full time loan originator, they are a minimum wage bank teller on welfare and food stamps with a NMLS or NMLSR, so they just tell the consumer "oh that's great! it'll be fine!" even though the person has a 0.00% chance of being approved (in the off chance that it does, maybe there's $250 in it for them... but it costs them $0 if it doesn't!). So, a month each with the bank teller, times five. I see that you are a real estate agent. Will your client on your current listing wait around in escrow with all contingencies in place for six months while the buyer mucks about with this HELOC nonsense? If they will, then frankly you should probably fire yourself and tell that seller to work with an LA listing agent that I'll happily refer them to. :P

Also, why would you be "making payments" on a HELOC with a balance of $0? No matter the interest rate... $0 times anything is... $0.

Getting the HELOC is essentially just a hack around saving up a down payment. You need the down payment/HELOC before being preapproved. How can you get preapproved with no down payment? If you were to refer me a client, do you want me preapproving them and telling you they are good to go when in reality they have $0 towards any form of down payment and can't even afford an EMD or appraisal fee, much less lunch? 

HELOC, or save a down payment, first.

@Chris Mason, tough love my brother 😂. So eloquently conveyed. 

@Allie Dattilio -- We are in the exact same situation here in Cincinnati, getting the HELOC squared away first, actually it will be a HELOC increase through our credit union, then working with a mortgage broker to get the pre-approval in place. Everything is going smooth so far. As stated above though, HELOC start to closing process can take some time. We are looking at 30-45 days which is probably considered fast in most cases. Good luck!