Please point me in the right direction

[Michelle Le Mere]

Hey everyone, I would just like a shove in the right direction. My credit is 780, no debts except my mortgage. My house is valued at 224,000 and I owe 120,000. So, I was thinking I could take out a HELOC on my current property, pay off the mortgage, rent it out for 1400 a month and use the rest of my HELOC balance to buy a larger home for my family. I am not sure if this would be wise, or maybe I should just buy 2 rentals houses instead of renting out my current house. Any thoughts would be greatly appreciated. I am just starting my investor career and don't want to mess it up. Also, if there are any thoughts about joining Bigger Pockets as a member I would love to hear reviews. Thanks. I am in Wisconsin, if that matters.

[Scott E.]

Quote from @Joel Case:

Quote from @Michelle Le Mere:

So, the bank I am talking with said I would get a loan for 90% of my home value, so 90% of 224,000 would be $202,000.  I would take the 202,000 and pay off the 120,000 mortgage leaving me with $82,000 left to then use to either buy a bigger house, or 2 rental houses.

That's not how that works. You can only take a loan against the amount of equity, not the full home value. So it would be 90% of $104,000, the amount of equity you actually have. 

Respectfully, this is also not how it works.

If her lender says she can get a HELOC at 90% CLTV, then you take the value ($224,000) x max CLTV (90%) = $201,600 max debt on the property.

Then you subtract out the first mortgage ($201,600 - $120,000) to get the HELOC amount = $81,600

All of that being said, in theory the poster has 2 options:

1. Get a HELOC for $81,600 and leave the 1st mortgage alone

2. Get a HELOC for $201,600, pay off the 1st mortgage, and be left with a HELOC that has a balance of $120,000 and an available credit of $81,600.