Convert HELOC into home equity loan/other?

4 Replies

(not sure this is the best forum for this question. Let me know if I should move it)

I posted something along these lines earlier but thought maybe a more specific question would be better.

Crazy market here but here are the numbers:

Bought a primary residence in '13 for 249K

Appraised in spring '16 for 355K

Took out a HELOC in summer of '16 and used 55K for a downpayment on a rental property that was 255K in fall of '16. Conventional mortgage for remaining 200K

Did some work to the place, are on to 2nd set of tenants. Now cash flowing ~220/month from rental property. 

I'm happy with how it's all gone but don't like the looming HELOC increase, especially with rising rates. Am thinking about options to pay down the HELOC and replace with a more conventional P+I loan. Any suggestions? I think there's a chance the rental would appraise for just high enough to get a equity loan against that and still maintain 20% equity (~319K) but don't know if that sort of thing is allowed so soon after purchase (just over a year now). Any thoughts? I know this isn't the typical way to get into the rental market but we took the leap and so far, so good. Thanks.

@Ed Sylvester A Conventional Loan or a HELOC, either one of them treated as a 2nd loan. The costs of a LOC are a LOT less than a 2nd Conventional, closing costs will be around 3% of the loan. Figure the cost to apply is like a one-time fee, they allow you to keep it open for 20-30 years.

For what is allowed based on "seasoning", I recommend you ask your mortgage broker. Also get a quote for each. I think the LOC is a better way to go, because you can pay it off and use it as needed.

In my experience a conventional is a first; solid and true. If foreclosure happens the Conventional is paid first the HELOC being the second, is the second. Im curious how conventional would be "treated as a second".

Anywhoo, working in both 1st mortgage and later transferring to 2nds, I can say I still have a fair amount of investors using HELOCs because of the flexibility and shorter timeline and closing costs are much cheaper. 

Good luck in your venture. 

I did the same thing and I just worked on finding ways to pay down the HELOC. Look at it as a good thing, as a goal to accomplish, that's what I love about HELOCs. You're cash flowing on your property and building equity into it every month the tenants pay, so you're building wealth, and now you can find creative ways to pay down the HELOC.

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