Where did you get your HELOC and why??? - July 2023

Question

Hello,

I have some equity in my primary home and I am looking into getting a HELOC in order to fund my next two investment rental properties. I was curious as to what lenders people have been recently going with and why. Any advise you would give when evaluating lenders and their options? Is it ok to do this over the phone or would you advise going into a branch?

Brittany Minocchi · Answer

Different lenders will have different LTVs, or limits on how much of the equity you can borrow. They may have an annual fee or require you to draw a certain amount at closing. Some are fixed rate, some are variable. You don’t necessarily have to go somewhere local and you definitely don’t have to do it by going into a branch. Some require a full appraisal, some will use an automated system. DTI limits may vary as well.

As someone else mentioned, there is a 5-day HELOC product that funds pretty quickly, but the rate is fixed, not variable. It goes up to 85% LTV on a primary and will depend on your FICO. 99% of the process is automated and there are no rate sheets or pricers for me to use to get rates, but most of what I see is double digits. This product specifically is good for people who might struggle with a traditional underwrite, because there isn’t really any income “calculation”. You link accounts and it looks for deposits that are sufficient enough to cover your payment. In most states, joint/marital income can be used. So, you can use the debts of ONE person, but potentially count the income of multiple. Don’t need to cut rental income by 25% to account for vacancies either, which helps.

I don’t usually recommend using a HELOC without a plan in place to pay it off, because most do have variable interest rates and who knows which direction they’ll go. You don’t want to over-leverage yourself with your personal home on the line

Kerry Baird · Answer

Some lenders will order a full appraisal while others will use an automated valuation model.  On one of our houses, we were doing renovations inside and one lender did not need a full inside inspection, while another lender did.  We obviously used the lender who did a drive-by inspection of the property.  We have used small local-to-the-property lenders, and also have used a large federal credit union.

Jaron Walling · Answer

@Jordan B. Start calling local lenders and talk to smaller credit unions and banks. You don't need to go into a branch but it doesn't hurt to build the relationship.

A HELOC is a tool. It's not something you want to leverage for an extended amount of time. We recently used one to finish a BRRRR property. You need a lot of equity to open a HELOC. The lender we order an appraisal. We were approved for $30k but only used $15k.  Because we didn't pull all the cash-out after the rehab we essentially transferred equity from one property to another, but the equity went into a good cash-flowing rental (now on fixed rate debt). We made some HELOC payments and later sold the first property and closed out the account. It's a win win. It's just an example of how to use a HELOC effectively.

Ryne Sweeney · Answer

HELOCs are an option. Homebridge has an option that closes in 5 days and charges you 2% of the loan in fees. Its by far the easiest and fastest to do. No appraisal and you sign initial docs and 5 days later you sign closing docs. The rates suck, though. double digits think 11-14% depending on FICO and LTV. But the payment is interest only for the draw period. So think of it as a short term fix to get into other properties that can generate cash flow.

Another thing is that the lender can call the loan due in 30 days. It happened around 2008, but no one is expecting them to do it now...

C/O refinances are an option unless you have a rate sub 5%. Then it doesnt make sense.

Local credit unions are your best friend. The process will suck, but they are pretty much the only option that will get you single digit interest rate home equity lines. Well, them and SpringEQ, but SpringEQ will be 9% or higher most likely.

Thomas Meyers · Answer

I was in a similar situation several months ago.  I shopped multiple local banks and credit unions.  I was able to get a HELOC on a second home at the jersey shore that is also used as a rental property with Citizens @ Prime -75bp with a further 25bp reduction if you linked the account to a citizens checking account.  They did a virtual appraisal on the property.  The only other lender that would do something similar is WSFS, but they maxed out at 100k if there was any rental income attached to the property.  Using your primary residence you'll have a lot more options but I would check out those two as they have a strong presence locally.

Eric Snyder · Answer

@Jordan B.

Hey Jordan! Don’t know if you have any Huntington Bank branches in your area but they usually offer their customers a HELOC with no upfront fees. The appraisal is drive by and comps for valuation. Up to 80% LTV.  No annual fee with, I believe, $25,000 on deposit. This was the case a couple months ago and may be different now. Never hurts to ask them if you’re interested.

Kerry Baird · Answer

@Raj Ajrawat, we used PenFed on our own house.  Navy Fed has great rates, too.  Figure is fast.

Carlos Julio · Answer

@Jordan B.

As many others mention below , try to go to local banks and credit unions , I closed on my first heloc beginning of the year to be ready for my next property.

My learnings

- appraisal value is typically less of what you think,  this guy's are very conservative and their Comps are the lowest . Be conservative on the heloc amount you are expecting

-closing cost are included in the heloc as debt from day one; not sure if this apply for all the loans same way but I'm paying the interest of the closing cost and have this debt upfront 4% of total heloc amount

-not all the locals and credit union give you heloc on investment properties,  they rather your primary home; I got my heloc on my primary and I was looking for another heloc on my other investment home and it was hard to find but found a bank. Keep looking,  don'tstop

-my market is swfl and south florida that's why if I shut you the banks you won't find it in your market

Hope this help

It's really easy no big deal , you just need to take action

Jaron Walling · Answer

@Kevin Arceo We pulled the HELOC on our primary residence to finish the remodel on a rental. We have since moved, bought another primary, and sold that house. We closed out the HELOC and mortgage at that time. The HELOC was a short term tool used to remodel a property. Adjustable rate mortgages are designed to protect the lender so tread lightly.

Where did you get your HELOC and why??? - July 2023

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