Hi guys! Hoping for help understanding the best way to finance a property I'm interested in. Obviously I want to reduce my cost of financing, and with Investor loans even more expensive I'm looking for other options. Would a second mortgage/HELOC on my primary be an option and then make an all cash offer? My house is worth ~$650k and I owe $200k on it. Also, I have another property (Condo, paid off, worth ~$300k, rented to the same tenants for 9yrs) that I'd borrow against as well. Any help would be greatly appreciated! Chris
Real Estate Agent · Indianola, IA · Member since 2019 · 43 posts · 44 votes
3y
Yes! Definitely recommend tapping into that equity to build your investment portfolio! We've done it two ways -- a cash out refinance and a HELOC. You'd just have to run the numbers to see what makes the most sense. The cash out refinance is nice since then you just have one payment. The HELOC can be nice since once you pay that off you eliminate that payment, and you also have that line of credit available to use again without needing to do any other refinancing. I'd recommend connecting with a lender local to you who can crunch the numbers for you. There is also the interest rate factor these days. We did a cash out refinance for a down payment on a 5-plex .. but that was also a different situation where the refinance actually ended up being a lower rate than what our initial mortgage loan was .. I assume that likely wouldn't be the case now. When we used a HELOC for a down payment - the HELOC monthly payment was high and eating a lot of our profit so we actually ended up refinancing it back into our house. Again, just depends how the numbers work out. In a nutshell though, yes a second mortgage (in my opinion and experience) is a great way to finance an investment property when you have excess equity in your primary residence.
Real Estate Agent · Indianola, IA · Member since 2019 · 43 posts · 44 votes
3y
Yes! Definitely recommend tapping into that equity to build your investment portfolio! We've done it two ways -- a cash out refinance and a HELOC. You'd just have to run the numbers to see what makes the most sense. The cash out refinance is nice since then you just have one payment. The HELOC can be nice since once you pay that off you eliminate that payment, and you also have that line of credit available to use again without needing to do any other refinancing. I'd recommend connecting with a lender local to you who can crunch the numbers for you. There is also the interest rate factor these days. We did a cash out refinance for a down payment on a 5-plex .. but that was also a different situation where the refinance actually ended up being a lower rate than what our initial mortgage loan was .. I assume that likely wouldn't be the case now. When we used a HELOC for a down payment - the HELOC monthly payment was high and eating a lot of our profit so we actually ended up refinancing it back into our house. Again, just depends how the numbers work out. In a nutshell though, yes a second mortgage (in my opinion and experience) is a great way to finance an investment property when you have excess equity in your primary residence.
Thanks Ashley! The rate on my primary is 3%, so doing a cash out refi would hurt. Ideally, a second (separate) 30yr note would be great, but not sure if that’s possible?
Hi guys! Hoping for help understanding the best way to finance a property I'm interested in. Obviously I want to reduce my cost of financing, and with Investor loans even more expensive I'm looking for other options. Would a second mortgage/HELOC on my primary be an option and then make an all cash offer? My house is worth ~$650k and I owe $200k on it. Also, I have another property (Condo, paid off, worth ~$300k, rented to the same tenants for 9yrs) that I'd borrow against as well. Any help would be greatly appreciated! Chris
The advice I hear from investors using HELOCs for down payments or renovations is they want their money back in 12-18 months from cashflow or a refi. You can get a second lien on your primary or a first lien on your condo. I calculate if this is a good idea by seeing what your cash flow is today, what would the cash flow be with the new property and the new debt from HELOC or refinance. If the second option is greater than the first it can be a good deal.
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
3y
@Chris Smith- thanks ... getting a HELOC in place on your primary home is a great idea ....based on your figures - a heloc of 300-350K should be possible ( assuming you can qualify for it . Getting a heloc on the condo wont be possible ( very easily ) as most heloc lenders are not willing to do helocs on rentals ...... fees to get the heloc in place will be zero or close to zero and you are charged interest on it only when you pull money from it ...good luck
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
3y
@Chris Smith HELOCs on a primary is the most cost effective way to tap into equity to buy a property CASH. Investment property HELOCs are very rare so to tap into that equity a low leverage (sub 60% LTV) refi would be a good option.
Just be aware that if you are using a DSCR or investment purpose loan in combination with your HELOC. Most lenders do not allow 100% of the funds to purchase to be borrowed. Unseasoned HELOC funds are considered borrowed funds.