5 Things to Know About Home Equity Lines of Credit (HELOC) - YouTube

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.