Buying first rental with HELOC
Hello all my name is William and I'm still on the hunt for my first property. I'm about to get my preapproval and hopefully my first property soon thereafter. The question I have is I was planning on using my HELOC for a down payment. I was wondering if just calculating the monthly payback of the HELOC with all other costs/expenses of the home is what everyone does to see if the numbers still work or if they avoid using HELOC at all costs? Thanks in advance!
If you are using a HELOC as your down payment on an investment property then yes you need to account for that HELOC payment in your underwriting. Even though the HELOC is technically not tied to the investment property, it still should be looked at as a 2nd mortgage and part of your debt service.
@Bill Bob- if you have ample HELOC balance for the down payment and rehab costs - this is likely a great source of capital to use
Quote from @Dave Skow:
@Bill Bob- if you have ample HELOC balance for the down payment and rehab costs - this is likely a great source of capital to use
Thanks for the reply Dave! So I have 70k and would be using 57k for something I have in mind currently. Cash flowing still with monthly payment period at least during the 2 year draw. Not a ton of rehab off the bat, both units currently rented. I feel it's pretty over leveraged but have other available income that I could use if need be! This would be my first deal so lots to think through! Any insight would be appreciated!
@Bill Bob- is the HELOC tied to your primary home ? asking because most HELOCS have a longer " interest only " payment period ...not sure what you mean by " DRAW PERIOD " ? ... are you using an interest only payment or a full amortizing payment for the HELOC balance to do you analysis ? Make sure you are aware of how your HELOC works and how the payments and rates are calculated ( eg. if you have an interest only payment for 2 yrs - make sure you have a good idea as to what the payment will be after this 2 yr period is over
Quote from @Dave Skow:
@Bill Bob- is the HELOC tied to your primary home ? asking because most HELOCS have a longer " interest only " payment period ...not sure what you mean by " DRAW PERIOD " ? ... are you using an interest only payment or a full amortizing payment for the HELOC balance to do you analysis ? Make sure you are aware of how your HELOC works and how the payments and rates are calculated ( eg. if you have an interest only payment for 2 yrs - make sure you have a good idea as to what the payment will be after this 2 yr period is over
Yes great points! Yes it's tied to the primary home. The 2 year period is for interest only payments, and I have a 17 year fixed so the final 15 years is interest and loan payback. I did run both, the numbers are pushing it with the full pay back after the first 2 years. Didn't know if potentially rent increase or maybe a refinance down the road could maybe cover increase in payment but assume those aren't good "ifs" to go off of.
I wouldn’t recommend using a “
Possible refinance down the road “ as part of a decision to move forward
Do you have any prepayment penalties if you refi and pay it off before the 2 years interest only is up?