Home equity loan
I'm looking to get a HELOC on my second home which I've only used for a few rentals, it's basically our vacation home.
It’s in a trust there’s no mortgage value $650-$700 wanted to take out $150,000 for renovation and down payment on another rental.
I’m wondering good idea bad idea? How hard is it for a person with high credit score but no income, retired to get a loan? Have some income coming in but not from a job.
Most Popular Reply
Hello Michelle,
In order to qualify for a Heloc you will need to qualify just like you would when applying for a regular conventional loan. Meaning its a full documentation loan and you will need active income to qualify and only can go up to 50% debt to income ratio. If you meet those criteria then you can try to apply. Typically for investments you can go up to 75% of the homes value. But in order to go up that high you will need to be able to qualify. You did mentioned you do not have active income so the other option would be doing a cash out refinance to get money out using a Debt Service Rental Ratio loan. If you meet the guidelines you can potentially cash out up to 75% of the properties value. The way to qualify is we use the rental leases and divide that by the proposed mortgage payment to calculate the rental ratio. If your ratio is 1:1 or better you most likely will be able to get 75% of the value for the cash out plus better rates. Anything below 1:1 will limit how much you can take out and will have a bit higher rate.
My professional advice is to develop a clear repayment strategy to ensure timely payments and avoid potential financial strain.
I can pay it back that doesn’t worry me.
just getting a loan without income is the kicker!
Maybe exploring options like a home equity loan or a personal loan from a credit union could be worth considering. They might have more flexibility with income requirements.
Is it in a Revocable trust or non-revocable?
Hello Michelle,
In order to qualify for a Heloc you will need to qualify just like you would when applying for a regular conventional loan. Meaning its a full documentation loan and you will need active income to qualify and only can go up to 50% debt to income ratio. If you meet those criteria then you can try to apply. Typically for investments you can go up to 75% of the homes value. But in order to go up that high you will need to be able to qualify. You did mentioned you do not have active income so the other option would be doing a cash out refinance to get money out using a Debt Service Rental Ratio loan. If you meet the guidelines you can potentially cash out up to 75% of the properties value. The way to qualify is we use the rental leases and divide that by the proposed mortgage payment to calculate the rental ratio. If your ratio is 1:1 or better you most likely will be able to get 75% of the value for the cash out plus better rates. Anything below 1:1 will limit how much you can take out and will have a bit higher rate.
Answering questions in step by step fashion:
- Is it a good thing to do or not is a personal finance decision and it depends on the person asking it, their risk tolerance which in part has to do with how this HELOC or line of credit works and how your personality fares relative to taking on new debt (a person more adverse to debt might have sufficient savings and temperament to pay down/back the debt versus a financially liberal person might get in over their skii's as). It also depends on the situation sometimes a HELOC is warranted for short term financial needs so long as you have a plan to get back in the same or better financial position afterwards and the "means," and "will," to carry out this financial or mortgage plan
- HELOC's are typically full documentation qualifying loans so you'll need actual income to qualify whether it be from pension, insurance, rental's, etc that are all fully documented on taxes, W2's, 1099 forms, etc. There are stated or no income 2nd mortgage loans but typically these are fixed term and fixed payment type second mortgages meaning the interest rate usually doesnt fluctuate like a HELOC or home equity line of credit would fluctuate (prime + margin = annual rate calculated based on a monthly basis). These self employed 2nd mtg's are typically based on alternative method of caluclation like profit and loss statements if you're self employed or the last 12 months of bank statement deposits using a formula to derive an income from these deposits (like 50% of all annual rolling 12 calendar month deposits X 50% /12 months = monthly income).