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Updated over 4 years ago, 09/02/2020
Is a HELOC a good choice in todays....
Is a HELOC a good choice in today's market with such few supply and greater demand.
the buyers with cash offers are usually the winning bids
Would probably give you a quicker transaction and more leverage when negotiating
The money is available only when you need it.
It has great flexibility and light fees but can only do 20 year which makes payments higher and your cash flow per unit way lower.
What are some opinions on using HELOC in Fall/Winter 2020?
What are the reasons over conventional loan?
@Dale Miller I would and do use a HELOC for shorter term usage. For properties that I'm going to keep for a while, a conventional fixed mortgage probably makes more sense as it's a fixed (low) rate for 30 years.
Who knows where interest rates will be in 10 years.
Originally posted by @Mike McCarthy:
@Dale Miller I would and do use a HELOC for shorter term usage. For properties that I'm going to keep for a while, a conventional fixed mortgage probably makes more sense as it's a fixed (low) rate for 30 years.
Who knows where interest rates will be in 10 years.
@Mike McCarthy This will be my first rental and probably keep it as long as it cash flows but I read that if you keep a rental longer than 10 years then it will start to need more expensive repairs and eat into your profits. I don't know if I should do a 30 year fixed conventional or 20 year HELOC. Thanks for your reply!
I would do a 30yr mortgage. You should get a 3-4% rate (not exactly sure where the rates are at the moment) and not worry about it for 10+ years.
Originally posted by @Mike McCarthy:
I would do a 30yr mortgage. You should get a 3-4% rate (not exactly sure where the rates are at the moment) and not worry about it for 10+ years.
@Mike McCarthy I am getting quoted 5.13% for rental property mortgage plus $1200 origination fee. Seems way too high (This is a second property)
A HELOC is a great tool is you are flipping or using the BRRRR strategy for rentals.....intended to be a short-term use of funds. Short-term is relative to the situation.
Originally posted by @Paul Shannon:
A HELOC is a great tool is you are flipping or using the BRRRR strategy for rentals.....intended to be a short-term use of funds. Short-term is relative to the situation.
@Paul Shannon Sounds interesting. After analyzing the cash flow and monthly payment on a HELOC. The monthly payment on a HELOC is over 300 more per month because of the 20 year repayment. It just looks like it eats the cash flow per month and brings it to 125 instead of 500. Thanks for your reply!
@Dale Miller A HELOC is the strategy I used to get started in investing. I will say that line of credit loans are drying up now or the LTV is closer to 80%, when you used to be able to get 90%. Not sure if you can get enough funds to secure the entire deal, but it's a great option to secure your down payment and pay for any renovations. That way you are getting the best of both worlds with the opportunity to do a cash out refinance in 6 months to recover some of the HELOC funds.
- Ryan Hoover
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- 602-820-3674
Originally posted by @Ryan Hoover:
@Dale Miller A HELOC is the strategy I used to get started in investing. I will say that line of credit loans are drying up now or the LTV is closer to 80%, when you used to be able to get 90%. Not sure if you can get enough funds to secure the entire deal, but it's a great option to secure your down payment and pay for any renovations. That way you are getting the best of both worlds with the opportunity to do a cash out refinance in 6 months to recover some of the HELOC funds.
@Ryan Hoover I like many things about the HELOC strategy except when I see my monthly payment is 974 with the HELOC and only about 680 with 30 year conventional. The more cash flow I see possible monthly reduces my stress levels. thanks for your reply!
@Dale Miller
Better option would be cash-out refi when you go into contract. You can write offer as all-cash and 15 day close.
I do this all the time with my clients that have large chunks of equity in other properties. Complete the refi in 15 days, rolling the proceeds over to purchase escrow. Fixed low rate and payment. Alternatively, you can have simultaneous purchase loan and refi, using cash proceeds as large down on purchase loan getting you phenomenal rate and no cash out of your pocket. Again, offering 15 day close with 10 loan contingency is as good as cash to most sellers.
HELOCs serve there purpose though. If having immediate use for the money, then conventional refi is better choice. If just wanting reserve account/line of credit to tap into just in case, then HELOC works. HELOCs right now are probably around 45-60 turn time, though.
Don't make the mistake of getting a HELOC on your property before doing refinance, since you will get higher rate pricing on the conventional refi with subordinate financing in place. Get the refi done, then apply for the HELOC for your safety line.
Originally posted by @Dale Miller:
Originally posted by @Paul Shannon:
A HELOC is a great tool is you are flipping or using the BRRRR strategy for rentals.....intended to be a short-term use of funds. Short-term is relative to the situation.
@Paul Shannon Sounds interesting. After analyzing the cash flow and monthly payment on a HELOC. The monthly payment on a HELOC is over 300 more per month because of the 20 year repayment. It just looks like it eats the cash flow per month and brings it to 125 instead of 500. Thanks for your reply!
My HELOC is a 30 year amortization on my primary residence. Through Wells Fargo. However, I understand they have frozen opening new lines of credit for new customers since COVID.
I'm open a business line of credit secured by rentals through a local community bank. Same as you....20 year Am on that one.
There may be some 30 year Am options still available, but it could take some digging.
Originally posted by @Paul Shannon:
Originally posted by @Dale Miller:
Originally posted by @Paul Shannon:
A HELOC is a great tool is you are flipping or using the BRRRR strategy for rentals.....intended to be a short-term use of funds. Short-term is relative to the situation.
@Paul Shannon Sounds interesting. After analyzing the cash flow and monthly payment on a HELOC. The monthly payment on a HELOC is over 300 more per month because of the 20 year repayment. It just looks like it eats the cash flow per month and brings it to 125 instead of 500. Thanks for your reply!
My HELOC is a 30 year amortization on my primary residence. Through Wells Fargo. However, I understand they have frozen opening new lines of credit for new customers since COVID.
I'm open a business line of credit secured by rentals through a local community bank. Same as you....20 year Am on that one.
There may be some 30 year Am options still available, but it could take some digging.
@Paul Shannon: I think if I could find a 30 yr HELOC I would definitely go for that but only 20 yr ones around here for now. Payments too high for 20 year I would only cash flow a little bit
Originally posted by @Jesse Hinaman:
@Dale Miller
Better option would be cash-out refi when you go into contract. You can write offer as all-cash and 15 day close.
I do this all the time with my clients that have large chunks of equity in other properties. Complete the refi in 15 days, rolling the proceeds over to purchase escrow. Fixed low rate and payment. Alternatively, you can have simultaneous purchase loan and refi, using cash proceeds as large down on purchase loan getting you phenomenal rate and no cash out of your pocket. Again, offering 15 day close with 10 loan contingency is as good as cash to most sellers.
HELOCs serve there purpose though. If having immediate use for the money, then conventional refi is better choice. If just wanting reserve account/line of credit to tap into just in case, then HELOC works. HELOCs right now are probably around 45-60 turn time, though.
Don't make the mistake of getting a HELOC on your property before doing refinance, since you will get higher rate pricing on the conventional refi with subordinate financing in place. Get the refi done, then apply for the HELOC for your safety line.
@Jesse Hinaman: That sounds like a genius plan but the payments would be too high compared to conventional fixed rate when I got some loan estimates and they told me when I change it to a fixed it would be 7-9%
@Dale Miller not sure who you’re talking to, or if these are really inexpensive properties (under $100k value).
I’m doing a deal for a client purchasing new primary and pulling cash out of existing primary and converting to rental. 2.92% fixed 30yr on new primary purchase, and cash-out refi on old primary (now considered investment property so I can give him income credit for 75% market rent) at 3.5%. Loan amount needs to be at least $125k+ to get better rate options.
Having the same issue.
Trying to decide whether doing a cash out refi of $380k on our primary to cash out $200k (2.625% (2.74%APR) about $8k closing costs that would reduce my cash out amount) or doing the choice heloc product from PNC bank (no closing costs). With the Heloc I can get on a 30 yr installment plan to pay off current mortgage of $178k with a fixed 3.34% APR and leave the remaining $200k as back out for a future vacation home purchase we are searching for. Since we are not in a buyer's market, I see myself taking another 6 months or so to find a good deal, and paying interest on the refi may not be a good idea. But at the same time, by the time we find the second property, APR on the HELOC may be way higher and my credit will be impacted by the large unused credit line.
Any thoughts?
What are the advantages of doing a cash out refinance soon after closing or getting the property under contract?