HELOC on a second home (not a vacay prop)

5 Replies

I'm pretty new here. I'm looking to take out a Heloc on a rental property I have. I find many lenders will not do a HELOC on a property that is not the primary residence or a vacation home so I'm struggling to figure out a strategy to get a down payment for an investment. I have more equity in this rental than my primary home (500K equity with appraised value of 700K) vs my primary residence that has about 200k in equity and a value of about 750K. I want to use the Heloc to buy an investment property (or properties). I think to start we'll need 100K down on a property but I thought if we could get more maybe we could use it for another investment a year or two down the road. Not sure which is the smartest way to go about this. Also my husband is a finance guy and is very concerned about the variable rates going up with no cap. I think he won't let us do this if we can't limit our risk on the variable rate to some degree. Have people ever been able to either get a fixed rate option or that there is a cap on the interest rate? We ideally wouldn't want to refinance our current properties as my interest rates are 3.75 and 4.1%. What have other used as strategies. Thanks in advance.

@Danielle Z.

Where do you live?  Where are you investing?  

Thats a lot of equity. Factor the interest rate in your calculations. Interest is deductible and hopefully the HELOC money is a temp solution with a cash out refi on the new property being a long term solution.

I have not heard of a fixed rate HELOC.

Can you cash out REFI your current mortgage? However this would cause your interest rate to increase. A HELOC would be only a temporary increase in rate until you pay it off...a deductible rate increase.

Thanks Travis and Joe,  

Joe is interest still deductible if we do a cash-out refinance? I doubt they'd give all 500k, but maybe up to 300K. My husband and I live in the Greater Boston area and our current rental is in the city of Boston. We were looking for a turnkey unit with 100k down or multi-unit if we could afford it, but not sure if we could. Would you guys recommend taking just the 100k out or more? should we do it before we find the property? There is one we were looking at, but deals go fast in Boston so it might be gone already. Travis thanks for suggestion. I'll look that up. I may have come across some by another name but let me look at the details. If it were your properties and equity, what would you do personally?

@Danielle Z. We did this (reappraised a three-decker in Boston to apply for a HELOC to fund investment down payment on another, also Boston) and though rates are variable on the product we have, they're fixed for a period of time first - so paying it back is a priority.

In terms of timing, it does take some time to get through the HELOC process, so you probably want to start sooner rather than later, but I would discuss with your mortgage lender as well. In our case, our usual lender recommended a different local bank for the HELOC based on rates and his experience, and we kept him in the loop so we had a sense of timing both sides. If your next investment is in Greater Boston, you need all of your ducks in a row sooner rather than later, so you can move fast when something is a good fit. The current standard closing timeline is too short to also get a HELOC approved in time, and the mortgage lender will usually need to see those funds available to underwrite your next mortgage (though I'm not a lending expert, and it's possible if you used the same lender for both products, this might condense a bit more).

In terms of strategy, we got the HELOC for as much as the lender would possibly give us, but only took out what we needed for the specific property when we found it. In our case, though, the HELOC required us to take out a minimum amount ($25k) right away, so approval started the clock and we were paying interest and needed to be ready in all other facets, to not waste time once down payments was out of the way.

Happy to chat more offline if it helps, or can send you lenders I worked with in this area. Good luck!

@@Kate Ziegler Thanks for your reply.  I think we may have found the right situation for us with wells fargo. They were willing to do it on our rental for 60% on the equity.  But I'm totally interested in connecting to learn more about what lenders you have worked with too. Maybe there is a better deal out there. I agree about taking out as much as I can get. That will be the plan. If we don't use it no harm done.  How can we connect? I'm pretty new to these forums.

Best,

Danielle