HELOC on primary residence for investment of rental?

[Justin Wotring]

Hey everyone, 

2nd post here on BP and a newbie to RE investing. I've been soaking up info like a sponge through these forums, BP Podcast, and some audiobooks, as well as doing some research on Zillow, Trulia, etc. Here's my situation:

I'm looking through my options for capital on a single or multi-family rental property. I have some cash in savings, but I'd like to keep that on hand should any emergencies arise. Let's say my primary residence is valued at 650k and my mortgage is 350k. A quick HELOC calculator check from Chase.com tells me that at 80% LTV, I may qualify for up to 170k in credit. I most likely won't be taking that much, as I'd like to get my feet wet on my first investment with a down payment of 20k plus an extra 10-15k on rehab/reserves. My question is, if we were to move from our primary residence 1-2 years after the HELOC, how does the credit payback work, if at all? Can some of the profit from the sale be used to pay back the credit? Also, if anyone has had good/bad experiences with a HELOC please share.

I'm amazed at the wealth of information that can be found on these forums and the knowledge that all of you bring. I appreciate any and all of the feedback/advice that you give and I'm extremely grateful that I have found this community! Thanks again!

[Josh Durham]

Hi.

Using a HELOC to fund investment properties is exactly what I am doing. I am a newbie too, though, so beware!
Here is my main tip: call tons of local banks and credit unions and talk to the person in charge of HELOCs. Ask this person all of the pertinent stuff regarding their HELOC product(s). Put this all on a spreadsheet. 
Here are the things you will want to know:
-The location(s) of the bank.
-The name of the person who specializes in HELOCs.
-What LTV they offer...most have 80%, some have 90%.
-Interest rate. It is usually related to prime (like, prime plus 1 or something). Make sure to ask if there is a floor. Some banks say their rate is prime, but they have a floor of 5.25%.
-Do they have any current promotions, like low intro rates or terms?
-What are their closing or appraisal costs or origination fees? Some banks have none!
-Annual fees? Check or atm fees?
-Is there a minimum initial dispursement or draw?
-Is there a minimum draw amount? Some banks require a few hundred dollars minimum to draw, which would not be a problem when buying a house, but could be if you are making supply purchases directly from the HELOC.
-Is there an early pay penalty?
-Do they require you to have another account with their bank in addition to the HELOC?
-After you draw against the HELOC, how much is due each month? Interest only? $100? There are various options.

I got all of this info from 18 or 19 institutions, and there was one that was clearly the best for me.

Another suggestion would be to get the longest term and the highest LTV possible. This will give you the most flexibility, assuming you can let it sit there with no balance on it for as long as you want.

Also, it seemed to me that some institutions were not keen on the idea of using a HELOC for investment purchases, so, just be aware of that. When applying, you usually have to state a reason you are getting it (like loan consolidation or home improvement or whatever). I suggest being honest though.

Also, depending on the institution, it may be easier to take the money from the HELOC and put into a separate REI checking account (maybe even at another bank). If you need to move money quickly for a closing, certified funds to yourself, and then from that checking account to the title company can be done in a matter of an hour or 2.

Regarding pay-off upon selling the house, I believe different banks will have different policies.

I hope that helps!