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re: Using HELOC to purchase second home
Posted on 6/21/18 at 3:15 pm to baldona
Posted on 6/21/18 at 3:15 pm to baldona
FWIW, I have used a HELOC along with additional Cash on hand to buy rental properties with Cash only. Then once I owned them I did a cash out refinance on the rental property to pay off my HELOC. This allowed me to buy properties that did not qualify for traditional financing at the time and to make it easier. Then when I had them fixed up and able to qualify, I would refinance them.
I did it because my options were limited at the time. Its not a perfect way to do it and a refinance mortgage has worse rates and sometimes more fees than a first time mortgage. But its a very normal thing to do fwiw.
I did it because my options were limited at the time. Its not a perfect way to do it and a refinance mortgage has worse rates and sometimes more fees than a first time mortgage. But its a very normal thing to do fwiw.
This post was edited on 6/21/18 at 3:16 pm
2
Posted on 6/21/18 at 4:19 pm to baldona
quote:
FWIW, I have used a HELOC along with additional Cash on hand to buy rental properties with Cash only. Then once I owned them I did a cash out refinance on the rental property to pay off my HELOC. This allowed me to buy properties that did not qualify for traditional financing at the time and to make it easier. Then when I had them fixed up and able to qualify, I would refinance them. I did it because my options were limited at the time. Its not a perfect way to do it and a refinance mortgage has worse rates and sometimes more fees than a first time mortgage. But its a very normal thing to do fwiw.
This. Its great especially in multi offer situations as you can leverage your offer as cash offer vs financing and can close extremely quick vs underwriting process. Then clean it up once you own property.
Just remember a HELOC is typically only good for 10 year period and will need to be paid in full at that time
Posted on 6/21/18 at 5:44 pm to baldona
Any issues with getting approval for the loan on the 2nd house, with the lender knowing that part of the down payment came from a HELOC?
Posted on 6/21/18 at 6:01 pm to redbaron
quote:
Any issues with getting approval for the loan on the 2nd house, with the lender knowing that part of the down payment came from a HELOC?
You can use a HELOC for anything. Whoever said differently before is completely ignorant. Its not like they ask you what your HELOC is going to be used for.
All a HELOC is is a loan using your home as equity, literally the name.
Given that, how much you can loan for your 2nd home is going to depend on how much your total monthly loan payments are. So if you owe $500/ month on your HELOC that will limit your total you can loan by $500.
If you are using one loan to pay off another loan completely, they will certainly keep that in mind and reduce your monthly payments by that amount.
But just remember how much they loan you has nothing to do with the total amount, but has everything to do with your total loan monthly payments.
Posted on 6/21/18 at 6:35 pm to baldona
And did you have to have the money from the HELOC already pulled out and in your account at the time you got pre-approved for the loan? Or could you wait until closing on the house to exercise your HELOC?
Posted on 6/21/18 at 7:39 pm to redbaron
quote:
And did you have to have the money from the HELOC already pulled out and in your account at the time you got pre-approved for the loan? Or could you wait until closing on the house to exercise your HELOC?
Let me clarify. You can't use the HELOC as your only down payment. You'd have to have 5% or whatever the bank requires as a minimum.
I was talking exclusively about using a HELOC and cash to buy the property in total. Using a HELOC as a downpayment or portion of a down payment is different.
If you NEED the cash for the downpayment, as in don't have it otherwise, then you would likely be better off doing a cash out refinance on your current house and then using the cash out as the downpayment.
There's a very normal questions that any mortgage loan officer will be glad to work with you on. If you aren't comfortable asking them, I would highly recommend finding someone you are.
Getting the lowest percent mortgage is not always the priority when dealing with multiple mortgages. I've found finding a loan officer that is willing to work with you on getting a deal closed, is worth paying more for occasionally.
Posted on 6/21/18 at 9:20 pm to baldona
I should have enough cash for 20% down, to avoid PMI. But if I can get away with using a combination of HELOC and cash to pay the 20%, I'll do that. And be able to reinvest some of remaining cash elsewhere.
Touch
quote:
There's a very normal questions that any mortgage loan officer will be glad to work with you on
Touch
Posted on 6/21/18 at 10:01 pm to redbaron
quote:
Currently renting to a cousin and a coworker, hopefully would be able to fill the 2 rooms remaining if I leave. Otherwise, looking into the rental management option.
Also would plan on renting out rooms in new house.
Some questions, if you don't mind, just out of curiosity. What sort of (written?) leases do you/will you have with these 4 rented rooms in the current house? You said "rooms" (plural), so how many rooms will you be renting out in the new house? Have you done the debt-to-income ratios with and without these rooms being rented? Do you need that income to qualify? Lastly, what's your long term goal with the house in Odessa? Do you plan on keeping it for several years, in hopes that it will appreciate over time? Like I said, just curious.
I've never rented rooms in a rental property. I *might* rent to one person and let them sublet rooms - but I'd still have just one party to go after if the rent goes unpaid or someone skips out. But that's just me. You've got a LOT of moving parts here, with 5+ rented rooms, two houses in different places, two mortgages and a HELOC.
If you have an end game that's well planned out, that outweighs all this risk and likely headaches, maybe it'll work out. It's just not something that I'd ever consider, whether a loan officer would buy into it or not.
Good luck though.
Posted on 6/22/18 at 8:48 am to redbaron
quote:
Current house is in Odessa. Currently renting to a cousin and a coworker, hopefully would be able to fill the 2 rooms remaining if I leave. Otherwise, looking into the rental management option.
Also would plan on renting out rooms in new house.
I missed this. FYI this is technically illegal in many places. Many places especially established neighborhoods have rules against cohabitation of multiple people with different last names. Not saying don't do it, just saying be careful. Now apartments and condos are different. But neighborhoods with houses often times have rules against it.
Posted on 6/22/18 at 9:59 pm to cave canem
If he’s making bank he could. What makes you blink may not bother him.
People do it all the time, chill out. It’s a way to leverage yourself. Not uncommon at all.
However does seem the OP needs to do a little more research and self reflection and highly consider the weight of the action.
People do it all the time, chill out. It’s a way to leverage yourself. Not uncommon at all.
However does seem the OP needs to do a little more research and self reflection and highly consider the weight of the action.
Posted on 6/23/18 at 12:34 am to BogeyGolf
quote:
People do it all the time, chill out. It’s a way to leverage yourself. Not uncommon at all.
Absentee landlords renting individual rooms to multiple people on leveraged property while also renting individual rooms in their primary residence which is also leveraged in is not common to my knowledge, perhaps we run in very different circles but I would not touch this with a 10 ft pole.
There are soooooo many ways for this to blow up in the OP's face, most of which have not even been touched on here.
quote:
If he’s making bank he could. What makes you blink may not bother him.
You need to re read this thread if you believe that is the case.
Posted on 6/23/18 at 8:03 am to Jag_Warrior
quote:
It's just not something that I'd ever consider,
me either. he is begging for trouble and that is coming from myself who takes more risks than probably most. renting out rooms in a house you live in and can watch over? maybe. but a house far away with multiple rooms rented out? I am not touching that barrel of snakes. Even with property management in place.
This post was edited on 6/23/18 at 8:13 am
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