Renting Home with HELOC on it

[Clayton Maxon]

Hey BP,

My wife and I plan on renting out our personal residence within the next year after we move. Has anyone had the situation where they got a HELOC on their personal residence and then rented it out shortly after? Is there a clause in the HELOC that says you must live in the residence for the entire or partial duration of the line?

For context, we are considering the HELOC for renovation to our personal residence to get it ready to rent, and possibly also to have another source of liquidity for other deals. Even with the higher rates today, it will have a better rate than the personal LOC that we have currently.

Thanks!

[Don Konipol]

Quote from @Clayton Maxon:

Hey BP,

My wife and I plan on renting out our personal residence within the next year after we move. Has anyone had the situation where they got a HELOC on their personal residence and then rented it out shortly after? Is there a clause in the HELOC that says you must live in the residence for the entire or partial duration of the line?

For context, we are considering the HELOC for renovation to our personal residence to get it ready to rent, and possibly also to have another source of liquidity for other deals. Even with the higher rates today, it will have a better rate than the personal LOC that we have currently.

Thanks!

If there is a clause as part of the mortgage/ security agreement that the subject property must be owner occupied, then the lien holder has the right to accelerate the note with the outstanding balance due.  This of course doesn’t mean (1) they will find out that the house is not o/o, and (2) that even if they find out that they will choose to exercise this clause.  However, it’s something that should enter into your decision making process.  You may decide that the risk of enforcement is so low, and or that if necessary to can raise the funds needed to pay off the HELOC anyway, that it’s well worth the risk.  Just realize that a risk does exist, and if interest rates were to ever rise to double digit levels, lenders will be looking to call 5% interest loans whenever possible.