Is it true that having a SFH as a primary allows you easier access for HEL?

Question

From my research, owning a condo as a primary is more restrictive than owning a SFH because lenders view condos are higher risk. Is that true? So if one wants to buy investment properties, is it harder to get approved for home equity loans if you own a condo vs. SFH?

What about townhouse?

Sasha Mohammed · Answer

generally, "townhouse" is not a real thing. its typically either a condo, or an attached SFR... could also be PUD. I think once my career have a seen a title report show "townhome" or "townhouse". if you're unsure, check title.

Condos definitely have added restrictions vs SFR. the questionnaires for financing as @Luis Somoza mentioned above can pose challenges for any type of financing. If the association is not adequately funding a reserve account for example, or if the concentration of renters vs homeowners is too high -- these all pose issues, whether its a HEL, HELOC, or even a traditional 1st mortgage.

even a 1st mortgage will have added LLPAs (google: loan level price adjustments)/ fees for condos vs. SFRs. generally speaking, the price point advantage of a condo is nice, but if you have the ability to swing an SFR, you will reduce a lot of headache down the road for most (if not all) types of financing.

Luis Somoza · Answer

Actually, I would clarify that condo's are more complex than any traditional purchase/refi as a condo questionnaire is typically required for FHA/VA/Conventional and Non-QM lending, which adds another step, cost and layer of approval standard to the loan process that isn't required on a SFR/PUD/2-4 unit, as the association needs approval, in addition to the property and the borrower.

Now a HEL/HELOC could be different as those are subject to lender-specific guidelines more so than the others, which are typically investor-driven so it would depend on the specific lender in that case.

Devin Peterson · Answer

Hi Mike,

Interesting question. Generally speaking - you can get helocs/heloans with condos,townhomes just as easy as a sfh or 2family. Most of the times it is just additional loan level pricing adjustments that will add to the rate. The process for qualifying is the same as a purchase/refi as far as guidelines and underwriting is concerned. If you are thinking about getting a heloc on a condo or townhome to purchase a multi, it is possible. I recommend calling local banks and credit unions as they will know your area than a broker out of state, etc. if you have any questions feel free to pm me! gl!

Mike Arias · Answer

OK, I think I understand. So basically calculate the numbers as a cash out refi maybe better than taking out a HEL/HELOC?

Mike Arias · Answer

To purchase investment properties.  It may not be right away.  Without getting into a long story, I will have a decent equity (down payment) when buying that primary house.  A year or maybe slightly sooner, I would like to pull most of that equity [I know it will be based on LTV] to buy investment properties.

Dave Skow · Answer

@Mike Arias-  yes  -if the property is owner occupied - getting a  HELOC on a SFR/ TH  is likely  easier than on a condo

Luis Somoza · Answer

@Sasha Mohammed is right a townhouse is more of an informal term - it's technically an attached SFR located in a community governed by an HOA, so much like a detached SFR located in a community governed by a HOA, they are all technically called PUD's, or planned unit developments.

In a condo you own a unit within the building that is governed by the HOA, unless you're in a detached condo community - drawing a blank on the term for it right now - basically its a group of SFR's in a condo development, but those aren't treated the same as traditional condos. The financial health of the HOA is very important for a condo's viability.

My question is why would you need a HELOC after you buy your new home?

Mike Arias · Answer

Thank you, all. Reason I ask is that I maybe moving in the near future and start investing in real estate afterwards.  I am trying to figure out if I should exclude buying a condo as my primary because it is more restrictive to get HEL/HELOC that I can use for real estate investing.  @Sasha Mohammed, I had no clue about what a "townhouse" means.  So I should ask whether a townhouse is a true condo or attached SFR?  If a "townhouse" has HOA fees, does that automatically make it a condo or PUD?  Is PUD and condos basically the same?

I do tend to hear more negatives about a condo so that will probably not be an option anyway.

Is it true that having a SFH as a primary allows you easier access for HEL?

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