VA Refinance + 95% HELOC + NOO LOC

8 Replies

First post. I need some help. The intent here is to purchase a new primary residence. I currently have 2 VA loans. One on a property in Colorado, another on a property in Washington.

  • Colorado: 130M balance, 3.375%, LTV ~51%
  • Washington: 262M balance, 3.875%, LTV ~60%

Maximum Loan Limits in Snohomish & King Counties: $667M

My idea to leverage myself into a new primary residence is in 3 parts.

  1. Refinance the WA property to conventional financing to free up VA eligibility and back it up with a 95% equity line of credit from SDFCU.
  2. Draw a NOO equity line on the CO property
  3. Use both equity lines for a downpayment on a new primary residence financed with VA funding
  • My question is, does it make sense to refinance the WA property for the benefit of VA eligibility on the new purchase? Or would it be better to maintain the current low VA rates and hope for the best on new conventional financing?
  • I'm also considering looking for multi-family units. Max VA on a 4 unit property is $1.282MM and my understanding is I would only have to qualify for 1/4 of the loan amount, using the rents for the remaining 75%.
Originally posted by @Jesus Shuttleworth :

First post. I need some help. The intent here is to purchase a new primary residence. I currently have 2 VA loans. One on a property in Colorado, another on a property in Washington.

  • Colorado: 130M balance, 3.375%, LTV ~51%
  • Washington: 262M balance, 3.875%, LTV ~60%

Maximum Loan Limits in Snohomish & King Counties: $667M

My idea to leverage myself into a new primary residence is in 3 parts.

  1. Refinance the WA property to conventional financing to free up VA eligibility and back it up with a 95% equity line of credit from SDFCU.
  2. Draw a NOO equity line on the CO property
  3. Use both equity lines for a downpayment on a new primary residence financed with VA funding
  • My question is, does it make sense to refinance the WA property for the benefit of VA eligibility on the new purchase? Or would it be better to maintain the current low VA rates and hope for the best on new conventional financing?
  • I'm also considering looking for multi-family units. Max VA on a 4 unit property is $1.282MM and my understanding is I would only have to qualify for 1/4 of the loan amount, using the rents for the remaining 75%.

HI Jesus,

You have great rates above.

The current rates in the market are much higher from lower 4's to 5's if we're talking about non owner conventional 2-4 unit properties. 

Even owner occupied VA 4-plexes are around mid 4's.

There are going to be multiple schools of thought here because there are multiple variables.

On one hand you can refinance the VA loans into conventional. This will increase your current mid 3% rates into higher 4% rates so we'd have to do the math on it to see if by restoring your VA entitlement it will be worth the extra "premium," paid in rate and closing costs to refinance are worth it. It would only be worth it if your VA entitlement was used to purchase something that had a higher return than what your cost was to refinance one of your above mentioned properties.

The other consideration is, what are those loans above? Are they 30 year fixed or 20, 25, 15 yr fixed? The reason I ask is because your payment on those loans may affect your debt to income (DTI) so by converting a 15 year fixed into a 30 year fixed even with a higher rate you could achieve a lower monthly payment and by doing so you quite actually qualify for more. This would only be an advantage if you're tight on qualifying income but if you make big $$$$ in your day job then you may not need to refinance for the sake of managing your DTI.

Also on VA, the limit for 0% down in snohomish, King, and pierce is actually 667,000 and you can qualify for a property that is higher than this but you'd have to bring in 25% of the difference above this limit in terms of "down payment." As for rental income, you can use 75% of rental income from the other 3 units (assuming a fourplex) and you live in one of the units.

Its important to note that the rent from the 3 units is added to your income to qualify (less advantageous calc method)  and is not used to offset the mortgage (more advantageous calculation).

Also you have two current loans outstanding VA loans that have 67% of your 667k limit tied up. This means you could do up to 0% down up to only 33% of 667,000 (king,snohomish/pierce) = $ 220,000. With out refinance any of the other VA loans you'd have to bring in 25% of the difference above this 220,000 example if you're talking about a purchase in these three counties in WA. Partial entitlements with VA can be super technical so its good to have a game plan first.

There are a couple other considerations but with out knowing your situation no can really know what to suggest.

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453), and TN (#345453)
949-514-5106

@Jesus Shuttleworth not much to add to what was already said except that let me know if you find a NOO equity line for the CO property. I know of no one doing HELOC in 2nd position on non-owner occupied properties.

Originally posted by @Bill S. :

@Jesus Shuttleworth not much to add to what was already said except that let me know if you find a NOO equity line for the CO property. I know of no one doing HELOC in 2nd position on non-owner occupied properties.

Bill, I just spoke with PenFed, who said they offer 2nd position variable equity lines at P+1%

Albert, both loans are 30 year fixed. I don't make big $$ which is why the 0% down is advantageous for me. My base without bonuses would support a 41% DTI payment on roughly a $500M purchase.

Essentially I would use the equity lines to reduce the amount financed on a new 30 year VA loan for the new purchase by paying down the purchase price off the top, which is why opening my VA eligibility seems so important.

Thank you for clarifying the details on a multi-family property.  I sincerely appreciate the input. 

Originally posted by @Jesus Shuttleworth :
Originally posted by @Bill S.:

@Jesus Shuttleworth not much to add to what was already said except that let me know if you find a NOO equity line for the CO property. I know of no one doing HELOC in 2nd position on non-owner occupied properties.

Penfed.org a credit union based out of OR I believe will go up to 80% LTV with a 2nd position HELOC but the problem is they have a limit on the number of total financed properties at 3 max including your primary (last I checked with them). So basically they are saying loud and clear they dont want any professional investors utilizing their HELOC only the accidental landlord or aspiring RE investor.

None the less the product is stellar.

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453), and TN (#345453)
949-514-5106
Originally posted by @Jesus Shuttleworth :

Bill, I just spoke with PenFed, who said they offer 2nd position variable equity lines at P+1%

Albert, both loans are 30 year fixed. I don't make big $$ which is why the 0% down is advantageous for me. My base without bonuses would support a 41% DTI payment on roughly a $500M purchase.

Essentially I would use the equity lines to reduce the amount financed on a new 30 year VA loan for the new purchase by paying down the purchase price off the top, which is why opening my VA eligibility seems so important.

Thank you for clarifying the details on a multi-family property.  I sincerely appreciate the input. 

Welcome,

Just thinking out loud here, but did you calculate the potential rental income on that 500k (not "M," that would imply million) purchase when coming up with that 41% DTI?

If it were my client these are the considerations I'd be walking the borrower through:

- calculate the new higher HELOC payment after you used those funds for your new VA purchase (to bring in the portion required by the VA to purchase or pay down as you call it). This new higher payment on our HELOC may affect your DTI even more

- calculating the potential rental income at 75% of the monthly gross value will or should lower your DTI (this is only for the units you dont live in). The last VA loan I funded the underwriter wanted proof the veteran had some sort of landlord experience prior (not a full 2 years) and they wanted to see 3 months of cash reserves but this was a fourplex in the Jefferson Park neighborhood of Los Angeles, CA - mid 2017

- when calculating your DTI are you using what you feel you're getting in terms of cashflow on your two properties or have you sat down with a lender and did a cash flow analysis using what the guidelines will allow you to count towards your DTI? Often times accountants write off a lot more than you may be receiving in real life so dont be surprised when the lender uses worst case numbers.

- Also when you leave your current home, or vacate your current home will you have a rental agreement(s) in place so you can use that income to offset your mortgage payment? If your DTI is tight you may want to get a lease agreement in advance but these are things your lender should be coaching you through in anticipation of this purchase

- dealing with the cash reserves, landlord experience, 

Best,

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453), and TN (#345453)
949-514-5106

I appreciate the thinking out loud.  That's how I visualize the moving pieces.  I think I've figured out my plan of action in these iterative steps for purchasing another single family home. 

  1. I've applied for the PenFed NOO Equity LOC at Prime + 1.00% (5.50%) for hopefully ~ $70M
  2. I will apply for a SDFCU OO 95% LTV HELOC at 3.99%-5.50% for hopefully ~$150M
  3. I will refinance the WA property to conventional 30yr fixed at hopefully ~4.50% leaving my VA eligibility at ~$536M

I am looking for the Pros & Cons of doing it like this.

The Pros:

  • Gives me access to ~$220M capital/cash
  • VA eligibility goes from ~$275M available to ~$536M available

The Cons:

  • I lose the 3.87% rate on the WA property.  The rate will increase ~4.75%
  • The cost of refinancing and originating lines of credit, both out of pocket and financed costs

It may have been more beneficial to approach this problem by identifying the constants and the variables first.

Albert you are also correct in that PenFed limits total financed properties to 3. 
At our bank, we use the roman numeral M for thousands. MM for millions.

Originally posted by @Jesus Shuttleworth :

I appreciate the thinking out loud.  That's how I visualize the moving pieces.  I think I've figured out my plan of action in these iterative steps for purchasing another single family home. 

  1. I've applied for the PenFed NOO Equity LOC at Prime + 1.00% (5.50%) for hopefully ~ $70M
  2. I will apply for a SDFCU OO 95% LTV HELOC at 3.99%-5.50% for hopefully ~$150M
  3. I will refinance the WA property to conventional 30yr fixed at hopefully ~4.50% leaving my VA eligibility at ~$536M

I am looking for the Pros & Cons of doing it like this.

The Pros:

  • Gives me access to ~$220M capital/cash
  • VA eligibility goes from ~$275M available to ~$536M available

The Cons:

  • I lose the 3.87% rate on the WA property.  The rate will increase ~4.75%
  • The cost of refinancing and originating lines of credit, both out of pocket and financed costs

It may have been more beneficial to approach this problem by identifying the constants and the variables first.

Albert you are also correct in that PenFed limits total financed properties to 3. 
At our bank, we use the roman numeral M for thousands. MM for millions.

Timing is very important as well if you do the 2nd first it will cause the rate on your first to go up by .25% just FYI.

So make sure you strategically plan your 1st position refinances first then tact on the 2nds.

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453), and TN (#345453)
949-514-5106

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