I'm currently in the process of contacting various banks and credit unions to obtain a HELOC to be able to purchase investment properties with all cash offers. Some banks have decent offerings but as I have read here on BP, the credit unions are taking the lead. I have narrowed my search to SDFCU and Bethpage FCU.
My credit rating is well over the 720 mark which will get me the best rate as I was told by a rep at SDFCU. I have more equity in my home than I want to borrow or pay for investment properties so LTV is sufficient in both cases. The max at $300k (SDFCU) and $500k (Bethpage) doesn't matter as I am looking for $300k for now. However, currently SDFCU has an APR of 4.5% (Prime -1%) and Bethpage has an intro APR of 3.99% w/ min $25k bal for 12mo and Prime (currently 5.5%) for life after that. SDFCU has closing fees (appraisal+taxes) which should be around $2500 and Bethpage has no closing fees at all.
I don't plan to keep a $25k balance for more than the 6mo seasoning period before I can do a Cash Out Refi on my investment property. So the intro rate at Bethpage may not even apply. However, this may give me incentive to purchase multiple properties and have their seasoning periods overlap to meet the 12mo min for the lower rate.
So... do I go with the lower into rate at Bethpage (3.99% for 12mo) and Prime (5.5%) for life after that w/o closing costs? Or a lower overall rate at SDFCU at 4.5% (Prime -1%) and pay ~$2500 closing? Note the Prime -1% is not for life as the other is and may or may not increase over Prime in the future?
Thanks in advance for any advice/opinion you have.
@Stefan Abel , I'd go with Bethpage and get the full $500k. If you don't use any of the HELOC, it doesn't cost you a penny. You never know what kind of opportunities may arise and having access to the cash might come in real handy.
Avoid the closing costs. Over time the rates are probably going to end up being about the same. A 100 basis point spread only translates to $50/month/$100k borrowed. Not much to sweat, if you're using this for short-term financing.
What do your numbers say with your plan? Numbers don’t lie, and it prevents you from making a mistake by taking emotion or bad advice out of it.
@Jaysen Medhurst Thanks for the response. Great points. It's definitely better in the long run to have access to cash even though the immediate need is not there. Hoping to have many more deals over the 10yr life of the draw period. The short time between drawing from the HELOC and paying back through cash out refi makes the rate difference between the two options pretty negligible as you've stated.