Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
Hi everyone,
I purchased my primary resident in Queens, NY about 5 years ago. Thanks to crazy NY Real estate market, I have significant amount of equity on my PR which i'm considering tapping into to invest in other rental properties. I've looked around on past posts as well as google, but I can't seem to find any reason why anyone would choose HEL over HELOC. Let me know if I'm missing anything:
1. HELOC allows you to draw as much as you need (up to limit) when you need it, as opposed to HEL gives you everything at lump sum, whether you need everything or not.
2. HELOC allows you to pay interest only, where as HEL requires P&I like mortgage
3. HELOC are mostly Variable interest rate, but you CAN find fixed interest ones.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Michinori Kaneko HELOCs are great products if you have a good plan to pay it back. They have low costs, you only pay interest when you draw.....but they have adjustable rates AND they "mature" into something else after a while. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. With rates moving higher, it is likely that your rate will increase in the future. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC for 10 years it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.
So if use a HELOC, pay it back, use it again, pay it back...it is PERFECT. That's why flippers LOVE HELOCs and LOCs. But if you aren't planning to pay it back please be very, very careful. Maybe a cash out loan might be more appropriate.
Investor · Spokane, WA · Member since 2016 · 73 posts · 37 votes
7y
My primary residence is now occupied by tenants back in WV. I'm currently living in WA state. I'm thinking of getting HELOC on that property. I've approached local credit union here in WA and Wells Fargo for HELOC but it didn't work. What other institutions do you recommend I approach?
Rental Property Investor · Macon, GA · Member since 2018 · 15 posts · 8 votes
7y
HELOC's are awesome for new investors (like myself) that have equity in there primary residence. I would definitely shop around, I have a variable HELOC now just because the initial closing and appraisal was almost nothing. Appraisal can easily be $400+ plus several hundreds in closing so don't let a low rate sucker you in. I used a portion of my HELOC on a down payment on our first investment property and used the rest to fund the renovation.
Investor · Vancouver, WA · Member since 2013 · 315 posts · 63 votes
7y
@Manmath D. - Give Key Bank a try. They do HELOC on rentals.
Attention Mortgage Underwriters:
How does HELOC impact one's ability to get conventional financing? I see if you are using a HELOC then it would count against you debt-income ratio, but what if you have the credit line but don't use it? Will that limit how much you can borrow conventionally?
Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
7y
Ive asked that to my bank before and they told me only the used portion would impact your DTI calc but you would also have to provide your lender with copy of your HELOC agreement and also show how much balanve you owe. But maybe each bank is different.
Rental Property Investor · New Castle, DE · Member since 2016 · 376 posts · 158 votes
7y
Sounds like you've done your research! I too researched a HELoC and decided to go that route with funding and renovating my 1st property. The 10 year draw period along with the opportunity to lock in a fixed interest rate had me on the hook. It's still early in my repayment term, but it allowed me to pursue my dreams of financial freedom! Well wishes in whatever avenue you take to fund your deal 😊
I purchased my primary resident in Queens, NY about 5 years ago. Thanks to crazy NY Real estate market, I have significant amount of equity on my PR which i'm considering tapping into to invest in other rental properties. I've looked around on past posts as well as google, but I can't seem to find any reason why anyone would choose HEL over HELOC. Let me know if I'm missing anything:
1. HELOC allows you to draw as much as you need (up to limit) when you need it, as opposed to HEL gives you everything at lump sum, whether you need everything or not.
2. HELOC allows you to pay interest only, where as HEL requires P&I like mortgage
3. HELOC are mostly Variable interest rate, but you CAN find fixed interest ones.
Let me know if i'm missing something. Thank you!
HELOCs are awesome. Main driver behind my ability to scale my portfolio using simple interest & BRRRR strategy using it again and again.
Rental Property Investor · Long Island City, NY · Member since 2020 · 8 posts · 1 vote
5y
@Leo Poon
Why are you able to close quicker with a Heloc. I thought if you did a cash out refinance you get a check and the money is sitting in the bank ready to withdraw when a deal arises. Here trying to learn, please explain.