Last year I contacted my credit union and got a HELOC out for investing. It cost me a grand total of $250 and included an appraisal. I recommend that you begin the process now so that you have it ready when the time to strike presents itself. It should fund into a checking account and can sit there unused. You can use a check for your (EMD) Earnest Money Deposit and then another one for your down payment.
You probably already know, but you'll be allowed to take up to 80% LTV in most cases. This means that if your house is worth 100K and you have a mortgage of 45k, then the bank will approve you for 35k. 45 + 35 = 80. 80/100 = 80%
We have the HELOC and are also saving as much cash as possible. I highly recommend reading, the Richest Man in Babylon. Disponible en espanol ;) I'm of the mindset that a market correction is coming and I want to be correctly positioned to take advantage of it. I am also currently making offers, but at a price that protects me from any such correction.
Last year I contacted my credit union and got a HELOC out for investing. It cost me a grand total of $250 and included an appraisal. I recommend that you begin the process now so that you have it ready when the time to strike presents itself. It should fund into a checking account and can sit there unused. You can use a check for your (EMD) Earnest Money Deposit and then another one for your down payment.
You probably already know, but you'll be allowed to take up to 80% LTV in most cases. This means that if your house is worth 100K and you have a mortgage of 45k, then the bank will approve you for 35k. 45 + 35 = 80. 80/100 = 80%
We have the HELOC and are also saving as much cash as possible. I highly recommend reading, the Richest Man in Babylon. Disponible en espanol ;) I'm of the mindset that a market correction is coming and I want to be correctly positioned to take advantage of it. I am also currently making offers, but at a price that protects me from any such correction.
@Gerardo Varela think of a HELOC as a giant credit card tied to your property. Once you have that line of credit you don't have to go through a loan process before buying a property. In a competitive market it makes you look like a cash buyer. Once you have the property you should "season" the property and then get a stand alone loan on it and pay down your HELOC. At that point you will have reloaded your buying power and look like a cash buyer for your next property. Rinse and repeat...
If you do a cash-out refi, you will get a pile of cash to deposit in the bank. You would then be paying interest on the full amount as part of your new loan. This is true even if you just sit on it for 6-12 months waiting to find a deal.
If you get a HELOC, you will receive a checkbook and a line of credit dollar amount. You don't pay (P+I) principal and interest payments until you actually use it. You just have it ready at your disposal when the time comes. As @Arlen Chou stated, you're now in a position same as a cash buyer. Additionally, if you were to use half of it to fund a deal, you would only be paying for the half that you use. Any amount that you repay to your bank "reloads" the HELOC so it can be used again and again, as Arlen stated.
I like the HELOC deal better because it doesn't cost anything while we're out fishing for deals.
All great words of wisdom from @Tim Jones and @Arlen Chou. As long as you have equity in a property a HELOC is a fantastic way you can borrow against it. I would give work of caution though to balance out the thoughts. If you are only able to use your own personal property to get the HELOC then that may be your only choice but I personally do not like to tie up the home that I am living in to my investmets. That way if the market burps, my home is not in jeopardy.
I would suggest using the property that you purchase to get your HELOC. Now of course this is only if you are able to find, borrow, etc funds to get the property. Here is an example of how I just did it. So I am not a banker but I have just recently done 1 HELOC and am on to my 2nd, so I can tell you what I know. I just purchased a property for $10,000, in North Dakota, completely rehabed it and am renting it out. Since I have done this before I know that the ARV (After Repaired Value) was going to be around $70,000. So once I put the renters in I immediately turned around and tried to get a cash out refi on it. The plan was going well and a cash out refi would work BUT the banker sucked at his job so I looked locally for another solution and found a HELOC solution. Good thing too because the cash out refi was, like the guys said was going to cost me more.
At my local bank, I found that they were willing do give me a Home Equity Line Of Credit on the property AND here is the best part, it cost me NOTHING!!! except the price of an appraisal. No closing cost, No points, No fees of any kind except for the interest on the line of credit which is only on what I pull out.
So again - if you don't have to use your personal home I would recommend going that way 1st but if that is the only way, a HELOC is a good option.
The bigger pockets community is awesome. I appreciate you all taking the time to share. I'm debating this same scenario to get out of analysis paralysis. I'm ready to move forward on accomplishing my real estate investment goals in 2017. I'm feeling empowered to make a move and owe it all to the BP community!
I too have been in analysis paralysis and want to use a HELoC to purchase my first flip. Every time I run across a new thread I read up on it to see what additional insight I can get. I have reached out to my credit union and asked questions. My dad advised me to reach out to my mortgage company to also see what they offer. There are some pretty awesome people here on BP and I am so very grateful that I ran across this site!! Many blessings to us all in 2017 and beyond!!!
You can get 95% heloc on primary if you look around and qualify, I'm doing this now. 80% is available on NOO and I'll be looking into that also. Great way to free up equity for "cash buys" before refinancing or selling.
I did get an original thought reading this thread though I don't know if it would be a good idea until I crunched the numbers, would getting a heloc be a way to get around the 6 month seasoning rule for cash out refinancing? A non cash out loan could be started the day after closing, once this closes a heloc could be put in place to access an additional % of equity and if bought right will get all original cash out.
I'll be researching seasoning on Helocs immediately to get this answer, I'm assuming it's 6 month minimum but worth a look.
So this is my Heloc experience
January 2016 i started the process over my cash paid apartment that i bought for 160k. I had the apartment for 3 years and i figured the value went up, i needed cash for down payment for a house me and my fiancé wanted to buy.
So yes heloc is a credit line you take on your house.
Different from mortgage:
-Your monthly payment is just on your money you use from that credit line
- for the first 3 years of using the money, you can pay back just the monthly interest and not the principal
- no closing cost
- the interest can change, its not fixed
Its important to know that you still need to show income, pay stubs and proof that you can pay them back.
They still do appraisal for your place and will give up to 75/80% loan to value.
The appraisal is just external of the area and not including the interior of your property.
The process takes longer then mortgage
So my appraisal came back and the value was 160k!!! I was shocked to find the ****** comps he did.
In addition they gave me an approval back just on June, 5 /6 months after I started the process!!
And they approved just 50k because the thought I didn't had enough income.
6 months after , last week i got mortgage , one month process, appraisal was 215k so i cashed out 60% like 135k .
There is cons and pros to each , but check with your local bank like citi or Bank of America what is the options, if you have good income no need for mortgage broker as well but do your research!!
@Ruben Aquino a HELOC is a great tool if you use it correctly. But like any other tool, if you improperly you can get hurt very bad. My experience in getting a HELOC is very different then @Assi S.. The process itself is was very similar as to getting a standard loan or a refi. There are many different HELOC programs available, and it is worth the time to get to know your loan broker and also to shop around. In my case, I had pulled several loans and refi's with my guy, so I am sure that the process was abbreviated.
The first step is to get all of the standard loan documents you would need: taxes, W2, bank statements, etc.
Shop for the best HELOC you can find. There is a giant swing from bank to bank, so take the time to shop. I have had several banks that I do business with ask me about getting a HELOC and I laugh at them because I know they cannot match what I have... When they ask they always agree with my decision. I have a prime -1% rate...
Get your HELOC processed and once you have the credit line in place start looking for a property.
The process is not fast by any means. However, once you have it in place you are done with getting loan approvals. You can go out and buy a property do your renovations and increase value. Once done, pull a loan on the property and pay down your HELOC. Now your gun is reloaded for the next purchase. Basically the use of a HELOC defers the new loan process to after the acquisition, enabling you to move faster to lock up the deal.
HELOC is the greatest tool for financing your real estate deals, I was referred to Mr Salman in 2016 and with my existing HELOC of $320,000, I was funded $517,000 for Rehab in Brielle at 3.99% without cashing out from my HELOC. feel free to contact him for your financial needs.
Does anyone know where I can find the best HELOC with the best terms? I have been talking with many lenders and most are in the same ballpark as far as numbers go. I see that local credit unions to which I belong to, may have better terms. Any input would be greatly appreciated! Randy
Hi All,
I'm confused on the math when it comes to the HELOC. If my investment property is worth $81,000 (value it was recently appraised at) and I paid 77,250 for it and put 20% down ($15,450) how much could I take out? Or do I have to have a certain % of equity in it? Any help would be appreciated!
Andrew, the way I understand it is most lenders will give you up to 80%-90% of your loan to value of the home. Most, if not all that I have been in touch will only loan 25k or more as there isn't much money they will make off the deal. Assuming you still owe around 65k and it's valued at 81k, 80% of your LTV would be around 12.3k. I'm working on a HELOC also right now and this is what I'm being told. Hope this helps. Randy
I agree completely with every person that suggests a heloc.
Let's add value....
Do you have additional cash laying around in your bank account?
Put it on your heloc.
1. You have the SAME access you would in a checking account.
AND
2. You're paying less simple interest on your heloc balance!
Why let the bank make money on your additional cash. Use your money to save!
The downside to a heloc?
For those who don't have discipline, a heloc is not a good alternative.
I have known some who used their heloc as free money to spend. That's a very dangerous place to live.
Andrew, the way I understand it is most lenders will give you up to 80%-90% of your loan to value of the home. Most, if not all that I have been in touch will only loan 25k or more as there isn't much money they will make off the deal. Assuming you still owe around 65k and it's valued at 81k, 80% of your LTV would be around 12.3k. I'm working on a HELOC also right now and this is what I'm being told. Hope this helps. Randy
I'm confused by your calculations...how did you come up with 12.3k for LTV?
Can you use your "cash" from HELOC to buy foreclosure properties? I.E. can you do a wire transfer from your HELOC account?
Also, can someone else confirm that the appraisal for HELOCs is always only on the outside of the property and it wasn't just a bad appraiser? My dad just did a cash-out refi on his house and originally the appraiser only appraised the outside. He paid for another appraisal who came inside and his property appraised for an extra $100,000.
@Tim Jones@Arlen Chou from your experience, which banks would you recommend for a HELOC in California for a no-doc borrower. Borrower doesn't mind a low LTV. Property is clear.