HELOC I finally found one!

14 Replies

Hi all and thanks BP for all the HELOC posts and answers.

Hopefully this will contribute for others coming in just like I did with no clue how to or what to do.

After calling around to nearly all the local banks, it's a consensus that they only lend on the primary. A shame because I do have a rental that is worth more and paid up.

I found one that I'll be filling out an application for and wanted to find if I missed any questions or concerns before doing this. It doesn't seem so - I've read a lot here and on other financial sites describing the process.

The chosen one is PNC Bank. There is no application fee, no carrying costs, no prepay penalty, no closing costs, min 3yr open on acct, they order the appraisal and if needed, a survey. They also do a credit check, goes without saying. I get a copy of the appraisal. If I decide to sell my house then I just need to pay off the LOC before doing so. Their process will take at least 30 days.

Their draw period like most is 10yr with the remaining 10 as a payback period. The payback is P&I not just interest. When the 10yr approaches I can renew if I wish.

It's 80% LTV and the initial draw is based on 3.49% with remaining draws at the prime rate + margin of .75 (the margin varies and this example was based on 100k).

Other lenders I spoke with had annual fees or initial draw already at 4%. Another lender said that after the initial 10yr draw with the remaining 10-20 payback there wasn't a renew. I didn't quite understand that since all others I spoke with mentioned this 'renewal' of the draw.

Am I missing something here?

Thanks Daria

Hi @Daria B. - A couple more questions you might consider asking before you apply are:

1)  Are there any restrictions on what the money can be used for?  Most banks are going to have some restrictions.  For instance, I've had banks tell me the funds cannot be used for "business purposes", "educational uses", "new property purchase", etc.  There's no way to know what the bank will allow or not unless you ask them.  And I'd suggest asking them before you apply so you don't find out too late that you listed a use that they don't allow.  (There was another post recently by someone who did exactly that and were subsequently denied.)  Anyway, you could list a reason like "to have cash reserves", or whatever might be appropriate in your situation.  The point is, make sure your intended use is compatible with the bank that you're applying with.

2)  Ask them if there is any way to get a discount on the advertised rate.  I've had one bank give me a discount for opening up an account (when I didn't already have one with that bank), and another give me a discount for allowing the monthly payment to be auto withdrawn from a checking account.  The discount wasn't huge (a quarter of one percent), but it was better than nothing and cost me nothing to get it.

Good luck!

Thanks @Kyle J. those are great questions. The PNC rep I spoke with asked when I was coming in to do an application, so she is eager.

#1 I'll definitely ask that question. Only one lender asked what I was going to use it for and I said "home improvement". I didn't say "investment" but in the broader sense, yes it will be to do rehab on newly purchased properties.

#2 I don't have an account with PNC but I'll ask about the discount if I open an account. Every little penny helps.

Thanks!

Originally posted by @Kyle J. :

Hi @Daria B. - A couple more questions you might consider asking before you apply are:

1)  Are there any restrictions on what the money can be used for?  Most banks are going to have some restrictions.  For instance, I've had banks tell me the funds cannot be used for "business purposes", "educational uses", "new property purchase", etc.  There's no way to know what the bank will allow or not unless you ask them.  And I'd suggest asking them before you apply so you don't find out too late that you listed a use that they don't allow.  (There was another post recently by someone who did exactly that and were subsequently denied.)  Anyway, you could list a reason like "to have cash reserves", or whatever might be appropriate in your situation.  The point is, make sure your intended use is compatible with the bank that you're applying with.

2)  Ask them if there is any way to get a discount on the advertised rate.  I've had one bank give me a discount for opening up an account (when I didn't already have one with that bank), and another give me a discount for allowing the monthly payment to be auto withdrawn from a checking account.  The discount wasn't huge (a quarter of one percent), but it was better than nothing and cost me nothing to get it.

Good luck!

Asked about the "restrictions" and one lender said they don't "recommend" or "suggest" LOC be used for investment properties in any way. I asked if this was written as part of the LOC contract and they could not say it was. The words recommend and suggest give way to it not being enforced. They are getting back to me as I asked for proof- I don't want to move forward and then can't use it for its intended purpose. Thanks! And the words "deal breaker" go a long way to getting fees waived. :)

For anyone venturing into this thread.

While I did decide to go with PNC Bank (got all my paper work and talking to them today to do an application. fingers crossed), I had a follow up call yesterday from WF. 

Make sure you deal with one person who is giving you good answers. WF on 3 occasions told me different versions of what their HELOC structure consists of. First they don't charge various fees then they do based on your account (if you have one) so if you don't have one that still may change. I am not confident in WF albeit for the account I have (MD law requires a local presence for my rental) I will not be contacting them again for anything regarding loans.

So..... I went with Regions Bank since they had a minimum 2 yr of account opening, otherwise, if I closed it before 24 months I would have to pay the closing costs. Others wanted 3 yr minimum.

All paperwork has been filled out and handed in and they are processing it as I type.

Unlike PNC, Regions had a "line in a loan" as they referred to it, which is simply allowing up to 10 draws at a fixed rate of 2.75%. The payments are P&I and as with all other lenders was based on the prime rate and their "internal" rate they tack on to the prime. Their introductory is 1.99% from account open to 12 months and then the variable rate kicks in.

They had a deal that if I opened a checking account with a minimum of $1500 and direct pay into the HELOC account when paying it down, I would get another .25%. Not worth it as I have other accounts and they automatically make the payments so no control on that account. It would mean making sure the money is always there to make payments. Again, not worth it since I have other established accounts and not wanting more hassle than I need.

Had they a presence in Maryland I would have been able to use my investment property that has far more value than my primary here in Florida. They are working their way, I suspect, towards that area so I may in the future be able to use my investment on the HELOC.

Waiting for the appraisal to come in to see what 80% of LTV I'll be able to get.

Cheers!

Daria (and others),

Hello. I was just reading your post from a few months back on your HELOC. I am based in Tampa and I am looking into a Heloc. I had one lined up with Trustco at similar rates to yours, but at the last minute they would only do 60% on my primary residence, stating the have a $300,000 cap. I have no mortgage on this primary property in Tampa.
I have a feeling since my primary business is real estate ownership and rental income (own 44 sfh) they may have pushed me down to 60%.
How did your loan turnout? Who did you use? Was there a cap on the $?

If anyone else is reading. Do you have recommendation for a Heloc resource in Florida?

Thank you in advance.

Originally posted by @JW Franz :

Daria (and others),

Hello. I was just reading your post from a few months back on your HELOC. I am based in Tampa and I am looking into a Heloc. I had one lined up with Trustco at similar rates to yours, but at the last minute they would only do 60% on my primary residence, stating the have a $300,000 cap. I have no mortgage on this primary property in Tampa.
I have a feeling since my primary business is real estate ownership and rental income (own 44 sfh) they may have pushed me down to 60%.
How did your loan turnout? Who did you use? Was there a cap on the $?

If anyone else is reading. Do you have recommendation for a Heloc resource in Florida?

Thank you in advance.

 Hi JW,

I got my HELOC from Regions Bank here in Gainesville FL. They also have a "branch" in Maryland but does not write loans in that state, yet. If you look them up you can find where they do business and talk to them. The reason I was looking in Maryland was because I have property in MD that I wanted to be considered for the HELOC. They don't write loans in that state so I could not use the rental. I ultimately used my primary that still had a good LTV ( they did 80% for me).

I got a 1st year rate of 1.99%, usual 10yr draw and 10yr after pay back remaining. After the 1st year, the rate depends on the % I would want to lock in at and it be fixed. So I could use the variable, or I can use up to 10 times a draw and fix it.

Now, I recently found out that the interest from a rental cannot be deducted. I read a BP blog that talked about HELOCs. I'll tag Brandon Hall after this post and maybe he can illuminate on that topic-I don't want to misquote what I read.

@Brandon Hall

I quoted something you said in one of your articles, related to the HELOC and not being able to deduct the interest if it was on a rental investment property.

Maybe you can post the article here and explain if I've misquoted.

Thanks

Originally posted by @Daria B. :

@Brandon Hall

I quoted something you said in one of your articles, related to the HELOC and not being able to deduct the interest if it was on a rental investment property.

Maybe you can post the article here and explain if I've misquoted.

Thanks

Hi Daria, I believe it would depend on what the HELOC was used for. For instance, if you take out a HELOC on a rental property and use the proceeds to buy a motorcycle or a boat or go on vacation, then I don't think you can deduct the interest just because the original HELOC was taken out on a rental property. On the other hand, if you take out a HELOC on rental property #1 and use it to buy another rental property (#2), you can most certainly deduct the interest on the HELOC against the new rental property (#2).

I'm sure Brandon will chime in to explain further or clarify if I've missed anything. 

Originally posted by @Kyle J. :
Originally posted by @Daria B.:

@Brandon Hall

I quoted something you said in one of your articles, related to the HELOC and not being able to deduct the interest if it was on a rental investment property.

Maybe you can post the article here and explain if I've misquoted.

Thanks

Hi Daria, I believe it would depend on what the HELOC was used for. For instance, if you take out a HELOC on a rental property and use the proceeds to buy a motorcycle or a boat or go on vacation, then I don't think you can deduct the interest just because the original HELOC was taken out on a rental property. On the other hand, if you take out a HELOC on rental property #1 and use it to buy another rental property (#2), you can most certainly deduct the interest on the HELOC against the new rental property (#2).

I'm sure Brandon will chime in to explain further or clarify if I've missed anything. 

Kyle is correct here. You may take out a HELOC on a rental and as long as the funds are used for investment or business purposes, the interest is deductible.

In my article, I was referencing a HELOC you take on a primary home. The interest deduction is limited to $100k of financing unless you use the excess funds for a rental or business activity.

Thanks for the info. From my experience I have found that Penfed credit union will do up to 80% LTV on rental properties and Suncoast credit union will do up to 100% on primary but it has to be SFH no househackers like me.

Originally posted by @Brandon Hall :
Originally posted by @Kyle J.:
Originally posted by @Daria B.:

@Brandon Hall

I quoted something you said in one of your articles, related to the HELOC and not being able to deduct the interest if it was on a rental investment property.

Maybe you can post the article here and explain if I've misquoted.

Thanks

Hi Daria, I believe it would depend on what the HELOC was used for. For instance, if you take out a HELOC on a rental property and use the proceeds to buy a motorcycle or a boat or go on vacation, then I don't think you can deduct the interest just because the original HELOC was taken out on a rental property. On the other hand, if you take out a HELOC on rental property #1 and use it to buy another rental property (#2), you can most certainly deduct the interest on the HELOC against the new rental property (#2).

I'm sure Brandon will chime in to explain further or clarify if I've missed anything. 

Kyle is correct here. You may take out a HELOC on a rental and as long as the funds are used for investment or business purposes, the interest is deductible.

In my article, I was referencing a HELOC you take on a primary home. The interest deduction is limited to $100k of financing unless you use the excess funds for a rental or business activity.

 Thanks guys! That clears it up for me and anyone else venturing into this post. 

Good to know rentals "can" be used. The HELOC I got on my primary will solely be used for rental/investment activities. The max amount that was granted was $120k. When you say "deduction is limited to $100"...what does that mean? I can only deduct the interest up to $100k of the $120k that I have available?

Originally posted by @Daria B. :
Originally posted by @Brandon Hall:
Originally posted by @Kyle J.:
Originally posted by @Daria B.:

@Brandon Hall

I quoted something you said in one of your articles, related to the HELOC and not being able to deduct the interest if it was on a rental investment property.

Maybe you can post the article here and explain if I've misquoted.

Thanks

Hi Daria, I believe it would depend on what the HELOC was used for. For instance, if you take out a HELOC on a rental property and use the proceeds to buy a motorcycle or a boat or go on vacation, then I don't think you can deduct the interest just because the original HELOC was taken out on a rental property. On the other hand, if you take out a HELOC on rental property #1 and use it to buy another rental property (#2), you can most certainly deduct the interest on the HELOC against the new rental property (#2).

I'm sure Brandon will chime in to explain further or clarify if I've missed anything. 

Kyle is correct here. You may take out a HELOC on a rental and as long as the funds are used for investment or business purposes, the interest is deductible.

In my article, I was referencing a HELOC you take on a primary home. The interest deduction is limited to $100k of financing unless you use the excess funds for a rental or business activity.

 Thanks guys! That clears it up for me and anyone else venturing into this post. 

Good to know rentals "can" be used. The HELOC I got on my primary will solely be used for rental/investment activities. The max amount that was granted was $120k. When you say "deduction is limited to $100"...what does that mean? I can only deduct the interest up to $100k of the $120k that I have available?

Correct - so a primary residence HELOC can deduct interest on up to $100k in debt UNLESS the excess debt is used for investment or business purposes. So for you, since you used the HELOC to purchase a rental, we would deduct the interest on Sch E associated with that rental.

The limit is there so that people don't use their home equity to buy boats, cars, and pay off personal debt. 

There are a few technicalities but that's the gist of it. 

Originally posted by @Brandon Hall :
Originally posted by @Daria B.:
Originally posted by @Brandon Hall:
Originally posted by @Kyle J.:
Originally posted by @Daria B.:

@Brandon Hall

I quoted something you said in one of your articles, related to the HELOC and not being able to deduct the interest if it was on a rental investment property.

Maybe you can post the article here and explain if I've misquoted.

Thanks

Hi Daria, I believe it would depend on what the HELOC was used for. For instance, if you take out a HELOC on a rental property and use the proceeds to buy a motorcycle or a boat or go on vacation, then I don't think you can deduct the interest just because the original HELOC was taken out on a rental property. On the other hand, if you take out a HELOC on rental property #1 and use it to buy another rental property (#2), you can most certainly deduct the interest on the HELOC against the new rental property (#2).

I'm sure Brandon will chime in to explain further or clarify if I've missed anything. 

Kyle is correct here. You may take out a HELOC on a rental and as long as the funds are used for investment or business purposes, the interest is deductible.

In my article, I was referencing a HELOC you take on a primary home. The interest deduction is limited to $100k of financing unless you use the excess funds for a rental or business activity.

 Thanks guys! That clears it up for me and anyone else venturing into this post. 

Good to know rentals "can" be used. The HELOC I got on my primary will solely be used for rental/investment activities. The max amount that was granted was $120k. When you say "deduction is limited to $100"...what does that mean? I can only deduct the interest up to $100k of the $120k that I have available?

Correct - so a primary residence HELOC can deduct interest on up to $100k in debt UNLESS the excess debt is used for investment or business purposes. So for you, since you used the HELOC to purchase a rental, we would deduct the interest on Sch E associated with that rental.

The limit is there so that people don't use their home equity to buy boats, cars, and pay off personal debt. 

There are a few technicalities but that's the gist of it. 

Got it! I think since I don't mix apples and oranges, so to speak, what I do with the money will be an easy determination on how/where to deduct and what amounts. I like to keep things simple. :) And the express purpose for the HELOC is purely RE investment related.

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