HELOC question

[Lisa R.]

Hello. I am just starting out, with very little to no money. I am buying my first house, will be living in one bedroom, for around $175,000. Can someone explain to me how a HELOC works? Do I have to have equity built up in the house before I can do that procedure? And if I do, then approximately how much? And with purchasing this house, I am using a down payment assistance program which is allowing me to use little to no down. Because I utilized this program, have I limited myself in anyway from doing a HELOC, or possibly limited myself to other avenues of real estate investing? For example, will the requirements be stricter if I attempt in the future to get a second loan? Or do you think it would be impossible? Any help would be so much appreciated! I am so confused. I want to do this so badly, this is my passion but I just don't know which way to go. I've already signed the paperwork for this house so it's too late to back out of this deal. Thank you!! Lisa

[James Mc Ree]

HELOC stands for "Home Equity Line of Credit". The "Home Equity" is a presumption. Your HELOC lender will specify how much must remain in the property. You can't borrow equity you don't have.

Example:

$175,000 purchase with 75% LTV mortgage ($131,250). You have 25% equity ($43,750)

Suppose you find a lender willing to give you a HELOC up to 90% LTV:

LOC = $175,000 * 0.1 = $17,500 BUT that will mean you owe more per month once you use the credit and you will only own 10% equity. Make sure you can afford it.

Your posting appears to say you have near 0 equity which would make a HELOC unavailable until you have built up some equity.

I don't see how you would be limited in the future beyond a need for cash and equity in your next deal which we all have.

Jim.