How to max out the equity in my homestead

Question

I'm buying a house with cash to live in, but borrowing some of the money from our IRA's to get it. I understand that in Texas I can only get up to 50% LTV with HELOC, is it possible to just get a 30-year mortgage on 80% once I own it? We have excellent credit.

Andrew Postell · Answer

@Sandy Sawyer maybe I should defer to a HELOC expert.  I don't write HELOC's personally and I was thinking that 50% thing was a large bank rule and not a smaller, community banking rule.  Maybe you should start a new thread with the subject line of "Texas HELOC over 50% LTV"...or something like that.  HELOC's are so bank specific you may have to call several banks to see if there is a difference.

Andrew Postell · Answer

@Sandy Sawyer please ignore the post right above mine.  Texas cash out loans are VERY different than the rest of the country.  One, you can certainly find a HELOC that will go over 50% of the LTV.  That number you referenced sounds like you got it from a very large bank.  Plenty of smaller banks will go higher than 50%.  If you were to get a traditional cash-out mortgage you can get 80% of the LTV.  You can only get a conventional cash-out loans in Texas.  You will also have to use a bank that actually has a physical presence here and you'll have to close at the bank or the title company but both of those rules aren't big deals.  I will make a case for both a HELOC or a traditional loan:

HELOC - Super low closing costs.  You don't draw from it if you don't need to.  It works as a credit card for 10 years.  Use it, pay it back, use it again.  A lot of investors have these types of Lines of Credit.  The rate is adjustable though.  And after 10 years it "matures" into a traditional mortgage.  Meaning you will not be able to draw from it again.  And now the rate will be significantly higher.  So at the 10 year mark make sure you don't have a balance!

Traditional Mortgage - Rate is fixed.  You will always know what your payment is.  No prepayment penalty so you can pay it back if you want but you can't get money back out over and over.  You will have higher closing costs.  This loan is designed for permanency.  In 10 years, what will interest rates be like?  Who knows but you'll have the same rate from start to finish.

Anyway, I hope this description helps you with your understanding.  Feel free to ask away more questions if you need.  Thanks!

Sandy Sawyer · Answer

@Andrew Postell

OK Andrew, I'll call around. I know my little credit union I recently joined doesn't even do a HELOC. I'll use my ROTH IRA to do the deal but need to put the money back pronto. Thanks a lot for your input Andrew! :-)

Sandy Sawyer · Answer

Hey @Andrew Postell I just found this on a  website from Dallas...

"In Texas, the rules for HELOCs are a little different. Texans can  establish lines of credit using up to 50 percent of the value of their  homes as collateral (as opposed to the 80 percent allowed on standard  loans)."

Here is a link to it..

https://www.dallasnews.com/business/money/2014/08/...

Sandy Sawyer · Answer

@Andrew Postell

Correction, my credit score is over 800.

Sandy Sawyer · Answer

@Andrew Postell

Thanks so much Andrew! It's been over 15 years since I had a HELOC. I'm really attracted to the flexibility but didn't want to leave so much investing money on the table. We have excellent credit (over 700), zero debt, own house free and clear; but own free and clear. I asked my local credit union and they said they don't do HELOC. Do you have a bank recommendation?

Michael Wieczorek · Answer

Yes, you can even go up to 85% cash out if you needed to. This is possible with an FHA loan. If you are your spouse are veterans over our US military, you can go up to 100%.

How to max out the equity in my homestead

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