HELOC Calculation Misunderstanding

16 Replies

I'm just getting started in REI and went to my bank today to inquire about opening a HELOC. My bank said they would loan 80% of equity. However, when calculating the lendable equity, she used the formula:

Estimated Home Value - 370,000

Current mortgage balance - 276,000

370,000 x .8 = 296,000

296,000 - 276,000 = 20,000

She said my lendable equity is 20,000.

My understanding is that the calculation should be:

370,000 - 276,000 = 94,000

94,000 x .8 = 75,200

Lendable equity should be 75,200.

Am I missing something?

@Brandon Wood

When the bank says they will lend up to 80% in the form of a HELOC it just means they will lend only up to 80% combined LTV between your first mortgage and your second mortgage which would be in the form of a HELOC.

I would suggest shopping around for a bank or credit union that can do better. I have a HELOC out on one of my properties with Navy Federal credit union and they loan up to 95% for HELOCs.

Originally posted by @Brandon Wood :

I'm just getting started in REI and went to my bank today to inquire about opening a HELOC. My bank said they would loan 80% of equity. However, when calculating the lendable equity, she used the formula:

Estimated Home Value - 370,000

Current mortgage balance - 276,000

370,000 x .8 = 296,000

296,000 - 276,000 = 20,000

She said my lendable equity is 20,000.

My understanding is that the calculation should be:

370,000 - 276,000 = 94,000

94,000 x .8 = 75,200

Lendable equity should be 75,200.

Am I missing something?

you are absolutely missing something. You need to factor in the combined loan to value. HELOC lenders will typically lend up to X% with a combined loan. Your formula does not exist in the lending world. Using your formula, the combined loan to value would end up being 95%. You may get a 95% loan, but i don't see you getting a stand alone HELOC in second lien position for 95% of the value of your property. Maybe some lender that also has the first. Maybe some niche program from some credit union but stand alone HELOC's at that LTV/CLTV just don't exist in the regular world.

@Brandon Wood

Pretty much as stated before, you misunderstood the terms of the HELOC.

But I wanted to add, I'm currently in the process of pulling a HELOC and I am working with U.S bank. They loan up to 90% LTV and on up to a 50% debt to income. I liked that they allow you to lock in a fixed rate on up to three draws and are interest only for the first 10 year draw period.

Just food for thought if you are shopping around.

Good luck!

@Mike Barry I'm not sure, as I am pulling the HELOC on a primary residence. Call a local branch and I'm sure they'd be happy to help. US Bank seems small enough to work with investors but big enough to be able to lend nationwide. Most of the application has been done online, another benefit that I've enjoyed simply because it's saved time and been done at personal convenience.

@Mike Barry nope!  USBank only does HELOCs for primary and second homes not rental properties.  

Try EastWestBank...I have a non-owner HELOC with them (up to 65%LTV) and they don't require full-doc. I'm also looking at Wells Fargo's non-owner HELOCS...They have a 1&3 yr fixed-rate promotion but has amortized principal payment (not interest only) and requires full-doc. Im looking into Bank of the West tomorrow.

Yes, the bankers math is right and yours is wrong. Really think about your math; how is that 80% ltv.

The value is $370, so the total borrowed against it can be maxed out at $370 x .8 or $296. You already owe$276 so they can loan you an extra $20k $296-$276.

They loan up to 80% total value not 80 % of unused value.

@Kris H. Correct. This is how folks get burned when they panic in a downturn. What's funny is US Bank was a huge contributor to this nonsense last time. Just recycling alllll the time.