100% LTV Home Equity Line on Primary Residence?

Question

Hello, Has anyone gotten a 100% LTV Home Equity Line on their primary to fund deals? What are your thoughts on this and does anyone have names of banks and or credit unions that do these types of loans?

Andrew Kerr · Answer

@Ben C.https://www.wellsfargo.com/personal-credit/persona...https://www.wellsfargo.com/biz/business-credit/lin...

Andrew Kerr · Answer

@Ben C. - Hard Money works when you don't have enough cash to do a rehab deal on your own. It is a pain because of appraisals, inspections and draws, but it really isn't that bad. The challenge I tend to have with hard money is I move faster than the 3rd party inspectors can get out and turn in a report. Keep in mind, the HML cuts draws to reimburse for work already done. So even if they say they fund 100% of the rehab costs, you need cash or access to capital to float these costs. On small deals it is not a problem. But on the recent deal I did, we had over $250k in renovation work. When you have subs hustling, and you are trying to time ordering materials in advance, I was spending $15-$20k a week or more on materials and labor. So if I requested a draw for two weeks of work and materials, then it takes a 7-10 days for the draw inspection and wire to come in, there were times I had out $100k just on that one project. I have my unsecured lines of credit with Wells Fargo. Its a decent product for short term capital.

Jason Powell · Answer

I got a 100% LTV on my primary with Key bank a couple yeas ago. I believe they still do that. They split it into two lines actually, one that went up to 90% LTV and a second from 90-100%. They had stricter criteria for that extra 10% though such as a minimum income and low DTI ratio. It also had a higher interest rate (I want to say prime plus 3.5).I have never actually tapped into that second line though, and probably never will unless the deal of a lifetime falls into my lap and I'm willing to bet the farm on it. It's definitely better than hard money.I would agree with Andrew though. Where we are at in the cycle is not the time to be leveraging up big time.

Andrew Kerr · Answer

@Ben C. - my thoughts 5 years ago would have been "I would do it all day long", now my thoughts are "no way would I want to go to 100% LTV". Risk tolerances change, I have access to other capital, I can cross collateralize, etc.. Where I am at in my investing career, where I feel we are at in a market cycle, and now having a significant other, I wouldn't do 100% LTV on my primary residence.

Andrew Kerr · Answer

@Ben C. I don't think it is good or bad. Its a tool. As an example with the recent deal I used hard money on, I couldn't have done it on my own. The house needed extensive work, was un-insurable as is, and wouldn't have qualified for traditional financing. My purchase price was around $270k, and we spent over $250k on materials and labor. To do that deal in all cash I would have needed $500k. With hard money I I think I put down 20 of the purchase price, they funded the rehab costs (not all of them because our scope of work changed mid way through due to some issues with the city). I probably only tied up $50k for closing costs and down payment. Then had out anywhere from $10k to $100k in capital while waiting on draws.

Ben C. · Answer

It is interesting that a lot of people on here keep saying Hard Money is good because it allows you to do more deals vs being limited with your own cash. However, since you need to front cost of work and then wait to be reimbursed I am not really seeing how this is such an advantage vs using your own cash and simply doing less deals (less stress) but making a lot more $ per deal. Don't you think?

Ben C. · Answer

Yes here in NJ real estate is big $. So seems like that would be an issue. Do you have more details on the Wells line?

Ben C. · Answer

Yes I hear that. Can you explain more about an unsecured personal line? Unaware of what that is. Also, how did your HML experience go? It seems to be an annoyance from the outside looking in... Appraisals, inspections, draws, paperwork, high fees etc etc.

Andrew Kerr · Answer

@Ben C. I do have a HELOC on my primary, but I think the total LTV is like 75%. I also have a unsecured business line and an unsecured personal line. I use those, plus cash. I am not saying no to hard money, I just finished a deal using hard money. I was referring to that I would rather use hard money with a higher rate than max out a HELOC at 100% on my primary residence.

Ben C. · Answer

So how do you fund deals? Seems like you are saying no to Home Equity Line and HML?