Have 100% Equity, Need Cash -- What Do?

Question

I purchased a fixer-upper last month that I plan to have as my primary residence while I rehab it. The plan is to keep it for at least a year (maybe 2 years for the $250k exemption) and then sell it. I purchased the house for cash and had a private on-demand loan of $70k to use for rehab & holding costs. Well, my private investor has run into some financial problems and needs the $70k back, leaving me equity rich and cash poor.

I'm trying to decide what the best route would be for me as far as a HELOC or equity loan is concerned. I have a few other investments coming to fruition this year which are my main source of income, but since the timeframes aren't set in stone I don't want to count on them.

Are there any types of equity loans that don't have monthly payments where I'd pay the whole thing off when I sell? Again, I'm looking to sell within 1-2 years. I'm 31 years old with good credit, if that helps.

Jon Holdman · Answer

They may mean "we will do an appraisal, and use either the purchase price or the appraisal as the value, whichever is lower". But they may indeed just do a "drive by" appraisal. The appraiser just looks at comps, comes up with a value, and some drives by to verify the house is really still there. But they also want to verify you didn't pay an inflated price in order to turn around and use that to get a loan. As long as you're willing to live with the purchase price as the value, doing a refi fairly quickly after an all-cash purchase should be possible. I reread you original post, Ken Sanders. As long as your purchase price was $100K or higher, you should be able to get enough cash to pay off you private lender. I'd think it should be straightforward to get 70% LTV, maybe a little higher.

Sam Sagor · Answer

Thanks, that really helps. This is actually what I was trying to research. I will have to meet with some credit unions and banks at least I know what I'm looking for now. Please post any follow up.

Ken Sanders · Answer

Just an update for anyone interested: I went to my credit union today and applied for the HELOC. I received a call from their real estate department a few hours later saying that they need: 2009 and 2010 tax returns, a current year profit & loss statement for my LLC (which owns the property), copy of my drivers license, a copy of a utility bill, and proof of paid up taxes. Since I just recently bought the house, they said that the settlement sheet would suffice for the proof of paid taxes. They also said, and I quote, "Since you just bought the house, we're going to have to use the purchase price as the number". I'm thinking that they mean they're going to use the purchase price as the houses "value" in lieu of an appraisal, as no appraisal was mentioned. I'll post another update when the deal is done.

Jeff S. · Answer

The last heloc that only required an internet appraisal was only for 50k on 215k property. Credit Union. Before that a 100k on one that was probably less than 200k at the time. B of A. Have one on my home with B of A that since the decline in value is now over 90%. Hope they don't notice. No appraisal. Generally if you use a mortgage broker you will have to have a formal appraisal, but don't think brokers do lines anyway. The big boxes don't seem to require appraisals and neither has the credit union I deal with. Good luck

Sam Sagor · Answer

I second that. I'm trying to see if we can take a HELOC on a property I can't get appraised. What kind of LTV and were these small loans comparatively? What would you do if you were looking for this ... would you just be able to call credit unions and ask if they used internet appraisals? Thank you for the heads up.

Ken Sanders · Answer

Interesting, Jeff. How low of a loan-to-value are we talking?

Jeff S. · Answer

If your loan to value isn't much you should be able to get an internet appraisal. Recently looking into a LOC at a credit union and this is what they did. Haven't had a real appraisal for any refi's or my purchase.

Ken Sanders · Answer

Thanks again, Jon. My lender made the loan a year ago for a different property. It was supposed to be a two year deal which is why I rolled my profits into a new property. Too bad he never let on that he was having financial problems. Live and learn (him AND me).

Jon Holdman · Answer

Your guess is as good as mine for what an appraiser will do. In theory, they should do an "as-is" appraisal. Then they will lend you based on the appraisal or what you paid, whichever is lower. If you can get it fixed up, some lenders will include documented fix-up costs. Not your labor, but whatever expenses you can document with receipts. I find it pretty surprising your current lender would make then loan then call it a month later. That really puts you in a bind.

Ken Sanders · Answer

Thank you, guys. Jon- As far as a HELOC goes, I have the necessary qualifications to get one. I'm probably going to drop by the credit union that I have a relationship with tomorrow. My only concern is the appraisal. Some of the floors are down to the subfloor and one bathroom is currently gutted. How will this affect the appraisal? Will a fixer-upper generally appraise differently?