All Forum Posts by: Rosie Small

What does the original HELOC loan paperwork say? It's possible that it says if there is a change in occupancy you must inform them. Here is the sentence in my HELOC: Trustor agrees that the nature of the occupancy and use will not substantially change without Lender's prior written consent. It then also says later that if I rent the property there is an assignment of rents...so it doesn't say that they can call the loan, but it does state that I'm supposed to get their consent prior to moving out. 

 @Rosie Small   As long as you are not violating terms of the loan you signed you are good. so, in other words, if you attested at closing you would live in the property for at least a year and you closed on the loan a few months ago that would be a problem. 

I would max it out before you move, so if they freeze it you have access to the full line. 

No, they can't require it due just because you move out unless it's a reverse mortgage. They could potentially freeze the line so you can't make withdraws but they won't call it due. You should be good to go. 

@Griffin Pratt

I posted this recently on another poster's question so am reposting here as well.

I will say that I have never brokered an ARM or I/O loan until after March of 2022. Now, they are easily 75% of what I broker.

ARMs with I/O are highly desired in this market for a few reasons:

Increased Cash Flow - The most popular that I broker are 5/1 ARMs with I/O for 5 years, then 25yr Amortization behind it. The Caps are 2/2/5 and comes with a 3-2-1 step-down prepayment penalty. For 5 years, you have a fixed rate, that is lower than most Fixed Rate private money or Non-QM by the way, and get the benefit of increased cash flows. The interest only payments are fully tax deductible in most cases too.

More Competitive Rates with Lite Doc Loan Qualification - Many ARMs are lower than Non-QM and Private Money rates right now. Conventional is still better, for now, but my lenders are still in the mid-7's and upper 7's at par pricing, meaning no buy downs or rate adjustments.

Flexibility - Many believe that rates will recover in the next 2-5 years... or thereabouts... the 3-2-1 prepayment gives a lot of flexibility compared to FRM lenders where 5-5-5-5-5 or 5-4-3-2-1 are nearly standard prepayment penalty structures. This structure gives the investor a chance to get out of the ARM with little or no penalties after year 2 (1% is almost negligible in most scenarios) and essentially gives a 3 year window to refi before any adjustments ever occur. The flip side of that is if rate are lower at the end of year 5, the first adjustment could go down and you'd get a lower rate without having to refinance. If rates, skyrocket by then, you have a 2% cap year over year and have some saving grace if better terms are not available to you. Lastly, once your PPP period expires, you are free to pay down on principal all you'd like with no penalties.

Non-Recourse Lender - offers an SOS if things do go south and you can't make payments. The lender will recover the collateral and not come after personal assets. Another perk with non-recourse is, that so long as your insurance and taxes are in an entity's name, you will NOT have to count that property towards DTI constraints on Conventional loans underwritten with Freddie Mac. These properties do NOT count towards your 10 slots either.

At the end of the day, these loans are not typically meant to be stayed in long term. They are meant to weather the market until conditions improve. Meanwhile, investors can benefit from the above perks and securities with mitigated risks. I suspect that once the market conditions improve, we will see a shift back to FRM and very few ARMs or I/O as before the market turned. If you are planning to hold long term, appreciation is a moot point in these times as you need rental income to be consistent enough to cover your loan and keep cash flows up. As history has shown us, the appreciation will bounce back just as it does in any down turn. If you plan to sell or refi in a few years, then appreciation may be a more concern, but as long as you have a tenant and rental income that covers your loan, it is not as important at all.

Also, these points are in reference to 1-4 units only.

Cheers!

Great information.  I appreciate getting several good options to consider.    

A couple of follow-up questions/thoughts:

Is the 40% equity left in a deal doing anything for me other than looking good on a balance sheet?   

I like the idea of a business line of credit as using the equity if/when needed.    Interesting if that going to impact my income-to-debt ratio when I cash-out refinance the next one. Is a business line of credit available if the rental income isn't there?    

Once again, thanks for the ideas and this gives me some good starting points to research.   

I have an option up to 70% LTV on investment properties (max loan amount of $250K). Automated valuation (no appraisal) and super fast funding.