Question around HELOCs

[Joe McGovern]

Hello!

I'm a newbie from Iowa to the real estate investment world and am in need of capital to make my first investment. One of the options I've been looking into is using a HELOC on my primary residence. Before doing this though, I want to make sure I fully understand it. I would like to borrow around 10-15k to assist with a down payment. My thought would be to make the minimum payment for ~6 months, and then repay the 10k in full. I could just wait 6 months for that additional 10k to be made available to me, but want to have the HELOC as an option in the event that I find an awesome deal before then.

Could someone tell me how to calculate the minimum payment on this? Does interest compound? Are there any annual fees, maintenance fees, or closing costs I should beware of in opening this account?

Does anyone have any experience using a HELOC to fund part of a down payment?

Thanks for the help!

[Darson Grantham]

@Joe McGovern Great questions and I agree anyone who has equity in their primary and can make sure they dont spend the money on something non income generation should open a HELOC.

Most banks allow a HELOC to be int only payments . Int rate / 12 x amount pulled from the heloc, even if you open it and dont use any, it will sit there and you wont have to pay interest on it. Meaning the bank says you are approved for a $50k heloc and you dont need the money right away, you dont pay intreat on the $50k until you "pull it out".

Also most helocs will have a 5 yr term but then garantee additional years with a max increased rate. I like this because i can calculate that into the property I’m buying.

It cost me about $500 to open one, which by the sounds I should have shopped a bit more.

Good luck, and i’d love to hear the detail of the heloc that you get!