Question about HELOCs

[Tera Zeldenrust]

Hi BP forum!

I am incredibly new to real estate investing, still in the "read all the books and listen to all the podcasts" phase. I've been hearing a lot about using a HELOC to invest in deals. We have a good amount of equity in our primary residence so it sounds appealing but I'm having a hard time wrapping my head around all of the details.

Could someone explain the process of paying off your HELOC once you refinance your investment property?

Also, lets say we are approved for a HELOC but never use it. What happens then? Do you have to repay the amount you were approved for regardless on if you use anything? Once paid off, can you access these funds multiple times?

Any other HELOC information you have would be great, or just other creative financing ideas in general.

Thank you!

[Brandon Rush]

Hey Tera,

A HELOC is simply a credit card that uses the equity in your property as collateral. If you take out a HELOC on your property, your equity is not tied up until you use the HELOC.

Here are some answers to your questions:
* Paying off your HELOC once you refinance your investment property -
Assuming you mean that you purchase an investment property with a HELOC that you have on your primary residence, its very simple in theory. You would go through the refinance property on your investment property. Since the HELOC is not truly tied to your investment property other than the money you borrowed from it to pay for it, the bank should be able to refinance with the borrowed HELOC funds still in place. Once you get the money back from your refinance, you can go and pay the HELOC off, just as you would if you purchased the investment property with a credit card.

* Approved for a HELOC but never use it -
This will depend on the bank. My HELOC requires me to use it once a year or I will get hit with a whopping $35 fee annually. I really don't think this will be anything to be concerned with, but make sure you ask the bank this question.

* Once paid off, can you access the funds multiple times -
Simple answer is YES. Its just like a credit card, you pay off the balance, it frees up credit to be used again.

One thing to caution you about is that if you use the HELOC (Meaning you borrow funds from it), those funds may show up as debt on your credit report and may affect your debt to income ratio/credit score. Not a major issue but something to consider.

I say go for it, having a HELOC available will have minimal effects on you and is nothing to worry about. Just be wise with how you use the funds.

Let me know if you have any other questions and good luck on your journey!