What is going on, everybody. In today's video, I'm going to be going over five
different facts you should know about home equity lines of credit, also known as a HELOC.
So if you give me about 10 minutes in this video, I'm pretty much going to cover it
all. I'm also going to touch on some pros and cons and additional information as well. So
let's jump into it. So to start with, just a little background on me in terms of my
HELOC experience, I have about a six figure HELOC right now with one of my properties
and I'm working on getting additional HELOCs for several other properties that I own as well.
What exactly is a HELOC? It's basically just a revolving line of credit tied against your house.
So you can use it if you want, but you don't have to use it. It's always going to be there.
And the way the bank comes up with this number, if you're even qualified for a HELOC,
is that they'll take 85% of the appraise value. They'll do their own appraisal,
do 85% of that, and then subtract that from your mortgage. And that's potentially how much you
could get for a HELOC. Now different banks have different requirements and some banks also have
a maximum of how much they're going to lend. So you might not be able to get like $500,000 HELOC
and a lot of times they might have like $150,000 maximum, maybe a $200,000 maximum, but there is
a limit to how much equity you can access. And another thing to know about HELOCs is that this
is great if it's your primary residence. If it's an investment property, some banks might not even
do a HELOC for those types of properties. And the banks that do are going to be much more strict.
So instead of 85% of the value, it's probably going to be more like 60 or 65%, maybe as high
as 70% if you really call around and reach out to like 20 or 30 different local lenders. Now,
the way the process works for actually getting a HELOC, it's kind of similar to a standard mortgage
application, however, the bank or credit union is going to ask you for significantly
less documents. They're still probably ask you for tax returns and things like that,
but it's not going to be as involved as applying for a mortgage. And once you submit the documents,
the process usually takes about 45 to 60 days for the bank or local lender to approve the
HELOC. So at some point, during those 45 to 60 days, they're going to send an appraiser out.
Sometimes they can just do an action, automatic appraisal, just based on their evaluations.
And that's actually what they did for my property. So an appraiser actually
didn't even need to go out. They just had some type of computer evaluation they did
and got an appraisal from that and then took 85% of that, subtracted it from my mortgage.
And that's what I was able to get. So one of the main things to know about getting a HELOC is that
you should kind of shop around and find out who offers the best rates, the best terms, different
things like that, because some banks, they might only give you like 70%. Whereas other banks may
go as high as 85 or maybe even 90% in terms of the ARV. So what you can do is you can go on different
Facebook groups and a lot of times people will have questions. If you're in like real estate
investing Facebook groups, people will be asking, who has the best HELOC rates, that type of thing.
You can also ask just your local mortgage lender. And oftentimes they might get a HELOCK from a
completely different company. One of my top lenders, he gets his HELOCs or his one HELOC
from an entirely different lender. So I would try to come up with a list of maybe like five or so
local lenders, credit unions are pretty good for HELOCs. This is like the one
scenario where I would recommend working with a credit union. In the real estate industry,
they have a reputation for being fairly slow and not really closing deals in 30 days. However,
with a HELOC chances are you have more than 30 days to get it done. So it's usually not that time
sensitive and credit unions can offer great rates. They can offer great personal lines of credit.
HELOCs, car loans, refinancing, that type of thing. I just wouldn't recommend going with a
credit union if you're making offers on properties and you need to get it closed in like 30 to 45
days. The second thing you need to know about HELOCs is that at least in my opinion, there's
no reason not to get one. So if you have a lot of equity in your property, you can access that
equity, or you don't have to, but a HELOC gives you that option. You don't have to spend any money
in your HELOC. You can just have it there for emergency funds or for whatever you may need. So
you can kind of use it as like an emergency source of funds. Maybe you lose your job. Something
happens. You're moving, you're traveling, whatever it is, you can just have access to that.
If you wait too long and then you need the money all of a sudden it's going to be much tougher to
just get a HELOC in a short period of time. So just use it as like a source of reserves if you
want to. The fees and costs associated with getting the HELOC and maintaining your HELOC
are usually pretty low. I think I pay maybe 100 or a few 100 dollars per year to have access to
basically a $100,000 of pretty much liquid cash that I can access at any time. So I think it's
a pretty good return. Number three, you can use your HELOC for just about anything. There might
be some fine print with some lenders that says, you can't use your HELOC for this or that, but
generally speaking, you can use your HELOC for just about anything because it's tied
to the equity in your house. So why would the bank care what you're using it for?
And some of the most common things that people use a HELOC for,
including myself, you could do renovations on your property to increase the value. You could
also use it as a down payment to purchase maybe a larger property, a larger investment property,
or maybe just a larger property residence. Some people use HELOCs to pay the down high interest
credit card debt, or other types of, maybe student loans. Because the thing about HELOCs
the interest rates usually about four to 5%. So if you're paying credit card interest of 15 or 20%,
that could be pretty beneficial to you. I've even heard of some people using their entire HELOC
to pay down the principle of their primary residence mortgage. And there's actually a
book look out there is called to think how to pay your mortgage off in five years.
And basically the entire book in a nutshell is to get a HELOC of let's say, 50 or 100,000,
use that entire money to pay down, put it towards the principle payment on your mortgage,
and then use your job or source of income to pay down that 50 or a 100,000 that you've just put
towards your principle payment from the HELOC. And then reapply for a new HELOC, given that you might
be able to double the size of that HELOC and then just basically repeat that process where you now
take, let's say 100, or maybe even up to $200,000 of your HELOC, put it down towards your principal
payments on your mortgage. And within five years you could theoretically pay off your house.
So basically there's a lot of different things you can use for it. What I would not recommend is
buying like boats, new cars, vacations. That's how a lot of people got in trouble
in 2007, they were just basically using their house as like a credit card,
as an ATM machine. So you definitely, you got to be careful with the leverage. You don't want to
over-leverage yourself or put you in any type of dangerous situation financially. The fourth
thing to know, which I briefly touched on is that it's going to be significantly harder to
get a HELOC on an investment property. However, there are plenty of lenders that will do that
for an investment property. You just need to make sure you have a lot of equity in
that property and that you find the right lender. There are credit unions, I think,
including Pen Fed that will lend up to 70% of the appraised value, subtracted from your mortgage for
investment properties. So that's definitely one option and you can shop around to find some other
ones, but I also think their underwriting for these investment properties is a lot stricter.
So, if you try to get a HELOC on a investment property, make sure that curb appeal when the
appraiser goes out there is just like immaculate. So that there's no question as to the value,
because they're a little bit more conservative with these investment types of HELOCs.
The fifth thing to know is that getting the HELOC is going to help your credit score.
It's going to be a new source of debt. It's also going to help your utilization rate. So
when I add 100,000 to my utilization rate, assuming that I'm not maximizing that a 100,000
and I'm just keeping it there as like kind of a reserves, or maybe it's a down payment,
that's going to help my utilization rate quite significantly as I'm sure it would you as well.
So it's going to help your credit score so long as you make the payments if you
use it and you use it responsibly. So if you have any questions about HELOCs drop
them in the comments section below. I'll be sure to personally respond to every
reasonable comment. And watch this video right here and I'll see you in the next one. Bye.