Question for those who have used a HELOC to invest

[Account Closed]

I am seriously considering taking a HELOC against my home and using it to start my flipping business, or possibly as a down-payment on an income property (but most likely flipping).

Would love to hear from those who have taken a HELOC (for whatever reason), and find out: What your LTV was. How how much you were allotted. How much your monthlies were. And how much you were able to use at once?

My situation is this: I owe $413K to my loan. My home value is somewhere in the $650-700k range. I'm hoping I can get a HELOC of around $150K to start my business.

Thanks in advance.

[Steve Babiak]

I have two HELOCs. One on residence, where CLTV is 90%; other is a rental, where CLTV is 80% (rental was through Wachovia now Wells Fargo). Remember it is about the Combined LTV as to the limit of future advances that you will get on the LOC. These are interest only for a "draw period", with interest tied to (some number of points above) either LIBOR or Treasury rates; after the "draw period" there is a paydown period where the loan balance will fully amortize over the remaining term. The value at time of loan will be set by a fresh appraisal.

You can draw up to the full amount of the LOC, since the CLTV is already limiting the entire loan balance total to be less than value of the property. But the LOC can be "called" under certain circumstances; usually, if the collateral's value has diminished to the point where it's less than the amount of the original CLTV a lender will be at risk so call becomes more likely.

You will find that you can get a break on the interest rate if you allow for the bank to auto-draft from a checking account that is with the same bank; if you don't already have checking there, makes sense to open one and keep some minimal funds there to cover loan payments.

As to your example in the OP, let's use the following: $650k appraisal, $413K loan balance, 90% CLTV. So amount of total loans is CLTV times appraisal, or .9 x 650K = 585K; then subtract remaining loan balance from that and you have you HELOC limit of 172K. Now let's change the CLTV to be 80%: (.8 x 650K) - 413K = 107K. So the CLTV is really a big factor in how much you'll get. Now let's up the appraisal but stick to 80 CLTV: (.8 x 700K) - 413K = 147K.

That shows you want to try to find the highest CLTV you can get. Appraised amount increases will be multiplied by the CLTV to determine how much bigger the LOC might get. The appraisal in the last two examples changed 50K, multiply that by the .8 for the CLTV and you see a 40k difference in the limit for the LOC; and if you do the subtraction of the two results that's the same difference.