All Forum Posts by: Albert Bui

Ive used HELOC's to purchase properties, shoot I've even gotten cash out auto loans on my used acura tsx to buy a fourplex to bridge the gap. At the time I needed all allowable sources possible to gather the down payment to buy so I had to be pretty creative.

Whether its best to use HELOC's or not depends on what other choices you have. I would review all the cost of capital for the sources you have, example would be:

- your cash - while it seems free or zero cost your cash should always be assigned an opportunity cost such as 4.25% sitting around in a savings or CD account with no risk as your min cost of capital (cheapest source of capital)

- personal lines of credit with no security or asset backing it or called signature lines or signature loans at credit unions and community banks, these are usually prime + 2-4% so probably 9.5-11.5% roughly

- HELOC's or secured by real estate, lines of credit usually prime + 0% up to prime +3% or so, 7.5-10.5% rates

- fixed mortgages on your real estate like a cash out refinance at the moment can be around 6.75-7.5% 30 year so this one costs some where between your cash above and your lines or personal loans. This one is limited as it can only go up to 75% LTV on your property value or up to 80% (rare instances up to 90% LTV)

- 401k loans if you have a retirement or self directed solo 401k plan (self employed) might be 6-8%, you're borrowing from yourself but IRS rules dictate you gotta pay your retirement plan a reasonable market rate. You can borrow up to 50k or 50% from these plans WHICH ever is lower

- Cash value life/permanent insurance policies - these are 5-6% roughly for policy loans at the moment if you have a life policy you could consider accessing your cash value for a policy loan to fund your down payment or use the cash value within your policy as cash reserves

- stocks/bonds/portfolio - you can typically use 70% of the balance as reserves or borrow a SBLOC (securities backed line of credit) on your stock porfolio at certain brokerages to access a line against the value of your stocks typically brokerages will give you 30-50%, sometimes 60% of your stocks depending on your Beta or risk of your portfolio (lower risk stocks will get higher LTV % and lower rate and vice versa high risk stocks you'll get less LTV on your line and higher rate).

Hopefully that is enough ideas to jump start the mortgage planning on capital sources but you can plan ahead with these. Alot of these will require some tax planning, financial planning, and action to set in place prior to your real estate game plan.

Best of Luck,

 make sure to look into the potential rental income from the other legal units as well as that could help you qualify for more if your personal income "cannot," get there.

An example would be a fourplex, if you live in one you could in theory use 75% of the other 3 units (lets say 1500 each X75% = 1125 per month) to give you around 1125 X 3 = 3375 more gross income per month.

If you're only at 6k gross income per month now you can get up to 9375 per month in terms of qualifying income.

This add of income to help qualify can only be done in legal 2-4 unit properties and in some cases with ADU income (freddie mac conventional).

A sub 3% rate on a 30 year fixed mortgage is a beautiful thing as much as lenders will try to convince you to refinance you should keep it as long as you can since its so low (often times that rate is below the rate at which money is losing value or inflation so you're gaining value/net value by just keeping that mortgage, you could even call that liability an asset since its value is increasing in that way of thinking).

There are HELOC's and lines of credit out there that go up to 90-95% of the value of your home atleast while you're physically occupying the unit. So with careful mortgage planinning between your title timeframes (title seasoning as lenders like to call it), planning your income or tax returns, and how long you live at each property while you're house hacking them you could in theory get a HELOC on each primary residence before you leave them and buy the next.

The problem lies when you forget to add the HELOC because if you go to apply for the HELOC and you dont live there any more your LTV will go from 90-95% down to 70-75% maximum which means you'll be leaving about 20% of your equity's access on the table (idle equity).

Given HELOC's are prime (currently 7.5% fluctuates when feds change their 4.25-4.5% fed funds rate + 3.00 fixed margin = usually comprises the prime rate formula) its pretty pricey so I wouldnt use HELOC's as my first choice but rather as a back up source to fund your down payment or rehabs but to quickly figure out a way to repay these lines back down to zero (or find a plan to do so quickly).

1. a HELOC is "one," way to access your equity but a fixed loan refinance of the entire property is also another way to access that equity. The question lies with how much equity you want to access. I know of programs to access up to 90% of the value of the property for 1st or 2nd, some programs go as high as 95% for HELOC.

2. Investment no, depends on what you view as "low," all Investment out there is 15-25% down payment. The lower you go the higher rate spikes to while your main goal was to lower your down payment you've accumulated other problems (higher rate spiking up or other unfavorable terms) which causes your cashflow situation to get worst. So buying Investment or primary residences and making the numbers work should be something you do before you acquire the property that way there is a path to success that is charted upfront first. Like for instance if your SFR isnt going to cashflow day 1 while you live there thats fine but the question is will it cashflow after you rehab the entire house, split it up into 6 bedrooms, rent by the room on 1 year leases, and built 2 DADU's in the backyard (after july 2025 when HB1337 goes into effect) will it cashflow then?

How much cash do you need at each stage to accomplish this path (during the rehab how much cash and where will the financing come from? Then during the DADU build whose going to give you the construction note/loan to build them etc). To Sum it up, figure out how far you want to go with your property and what it will take at each stage and realistically how long it will take to get there to start planning ahead.

3. Yes I've lived in Seattle, Bellevue, Tacoma, Burien, Steilacoom, and lakewood. I know a bit about the area you could say.

Best of luck,

 well its 250-350 X .035 (3.5% down payment in decimal format) = 8750-12,250 down payment + closing costs (probably 6-8k roughly).

If you go even leaner you get a DPA (down payment assistance) program and that absorbs/covers/offsets your 3.5% down payment then you bring in the remainder of the down payment or just the closing costs.

If you go even leaner, you get the seller to cover your closing costs and then some becuase FHA is a program where you can receive up to a maximum seller concession of 6% so 6% or 350,000 is well over 20G's of closing (potential, your market may vary). In this scenario you'd bring in no money to the deal other than your documented income, credit, and promise to hereby pay on time.

Some DPA programs are only allowed on 1-2 units so if you're house hacking a fourplex you might have to go with the standard FHA or 203k (if you're in need of cosmetic repairs 203k streamline or the overhaul of rehabs with a standard 203k FHA program).

We've never experienced a lender we work with that required cash reserves on a FHA loan other than in specific circumstances like with a fourplex (min 3 months) or if you're under 600 fico some lenders add on an overlay which requires some reserves but overall in 95% of FHA situations there are no cash reserves required that I've seen over the last 15 years.

I've personally house hacked over 4 properties (condo, townhome, 2 fourplexes) and the xperience you're gain from them and managing your own tenants will definitely help ease you into rental game. Im looking into tenantcloud software at the moment as it seems like the most functional platform to manage tenants A-Z at free/low cost.

Good Luck on the RE game.

 what problem are you have at accessing your equity Ferm ?

 Its always good to keep personal lines of credit, credit cards with near full limit for cash advance, or other non secured methods of obtianing credit in advance of any deal so you can always have back up options. Typically rates on these are 3-6% + prime and given prime is 7.50% at the moment it could be anywhere from 10.5-14% which is like hard money with out the points to fill in any stop gaps in your investing plans.

Try working with the least expensive forms of capital first which are savings, then mtg's 6-7% at the moment, and move up the capital chain as it gets pricier and pricier.

I've used this strategy and still keep a few credit cards around with 50k limit that allow cash advance. My prior favorites were navy Federal credit union platinum, unify credit union, penfed or pentagon FCU, BECU's or boeing employee's FCU, and more.

As for HELOC's or secured lines of credit those are better as their rates are nearly the same as credit cards however the one advantage is if you max out a secured line of credit or secured loan against real estate your fico's and credit scores down tank 65-100 points while if you max out a unsecured line, just know that your scores will tank temporarily till its paid off thats why its only advised to use unsecured lines/cards/loans as a last resort.

Sometimes you need your credit and fico scores to refinance out of a situation so if you tank your fico's just know it will be much tougher to refinance or you may be able to refinance but at less than optimal pricing so its best to plan ahead in situations where this might occur.

 I would be interested to hear anyone reporting but its unlikely it would happen at a time like this unless values dropped substantially. The only markets I've heard values drop substantially are in Florida, Austin TX, or pockets where oversupply are rampant. The rest of the country so far is in relative balance with supply/demand. For instance in PNW or pacific northwest supply is growing in many counties however there are high demand pockets that get over asking and multiple offers like east side seattle (bellevue/bothell/kirkland/redmond).

Its hard to have the lender freezing your line if your value is still within the correct LTV's. Its not in downturns alones, but its in times of hardship either for the banks or when the LTV's go way above 75-80% then the banks start getting uneasy with the portfolio's risk level that they might issue a freeze or reduction of credit line.

FHA 100 mile rule doesnt apple to only FHA to FHA loans, it applies any time a borrower leaves their primary residence currently and tries to use FHA to buy another primary residence.

Luckily the OP doesnt have a 100 mile rule situation because the property has been rented by tenants for over a year so its already classified as a rental on paper.

You can use the rents on your rental to offset your monthly conventional mortgage on that rental property. The rental income a lender will use is most likely taken from your tax returns. There are some cases where an exception is warranted to go back to the lease agreements. Depending on the numbers, one calculation might be better than another. I would have to look at that situation to see which options are available.

The issue of why you dont qualify is probably due to DTI or debt to income. So we'd have to look at the income to see where the DTI ratio is currently at, as is today and help you plan your next purchase going forward.

One way to look at it is to compare the rents you’d get to a normal long term tenant on the open market with what this sorority will end up paying you to see if the juice is worth the squeeze or not.

If the premium above market makes sense in your situation then you could proceed with the sorority just make sure you have a ironclad lease agreement drawn up with some potential out clauses in case the tenant doesn’t turn out how you had envisioned it within the confines of the local laws of course. 

Hope that helps.