How Does A HELOC Work? Qualifications?

Question

Hi everyone. Up until this point we’ve looked strictly for flip properties using hard money. I’m now looking at a live-in owner-occupied flip using an FHA loan. Here’s what I need help with……..

Purchase price: $85,000 (FHA loan)

Rehab: $40,000 (my own cash)

ARV: $200,000

Since the house has now appraised at $200,000 x 80% = $160,000 and I owe $85,000 on the mortgage, $160,000 - $85,000 = $75,000 in equity for a HELOC (to purchase future properties)?

****What are the qualifications I need to meet to be able to utilize this $75,000 equity? DTI ratio? Income level? How can I be sure I will qualify to gain a HELOC and utilize the equity I’ve created?****

This route has never even crossed my mind until we got this baby under contract which I would like to live in, so I have some quick learning to do here… Thank you!

Account Closed · Answer

@Shannon K.  My HELOC has been great to acquire property. The qualifications will very lender to lender.  Depending on your Loan to Value ratios is a large part of what the rates and terms will be.  Usually on HELOC's for the most favorable terms you willl not want to go over 75%  L/V some institutions lend up to 100%... I would call your local credit union as they are usually the best out there.  Make sure you talk to at least 3 lenders 5 or more preferred. My HELOC was set up at 45% DTI ratio.  One thing if you tell them when applying / inquiring is that you plan to purchase a home with the HELOC.  They do not want to hear this and see it as a high risk and a business loan in which they will want less favorable rates for you and want to set you up on a  business loan.. Make sure that you check the box the money is for repairs as this is the primary use for the HELOC

Shannon K. · Answer

@Brent Boltz, Thank you for the response & strategy for getting this done correctly. I will look around at credit unions and several lenders to see what's available as well as let them know the money is for repairs. I just wanted to make sure I could use the equity we create because my med school student loans are putting me close to a DTI that's gettin up there... I want to make sure I won't be stuck because of DTI or income requirements so I need to look around to see what lenders' requirements are.

@Jeremy S. This house was on the MLS and we were out-bid back 3 months ago. We bid way over list price and still didn't get it. The guy under contract ended up not getting financing and it fell through. I jumped on it the hour it was re-listed and the offer was accepted at $7k less! Thank you for the ideas.