Home Equity Loan

Home Equity Loan?

I own two debt free rent houses that are valued at a combined 140,000 (apprasil district figure) and bring in a combined 1495 monthly rental income. I am wanting to pull some captial out of theese two properties for another investment oppurtunity. Would a home equity be the best method? What ratio of the 140k would a bank lend up to? Mainly Im just looking for the lowest closing cost and interest possible. My Fico is only high 600s(nothing truly bad on there just a short credit history because im in my mid 20s) thanks in advance

Public Comments

1. The bank will lend you money based on your ability to pay, you should consult a bank about this to see what they will approve you for.
2. Pulling out money will affect the income of your properties. Its usually not a good idea to use a home equity loan to buy property, because you can compromise all properties. Your payments will go up and your income will decrease. The value will go down because you borrowed against it. I see many people make a chain of taking out loans and purchasing property. But, that whole chain can collapse if one property goes wrong. You have to figure out what the investment opportunity will bring to you, and figure how much it will cost. Using home equity loans to invest is an amateur's method. The interest rates are so high that there arent any investments to cover it. Its just like investing with credit cards. Smart investors find cheap money to borrow, or use some of their own assets. Maybe you should save more of your rental income. It shouldnt be your primary income anyways, that money was from an investment so why not reinvest it. Investing is risky, but you should take smart risks. You can lose the rental income, but you dont want to lose the properties. ONICK seems to be a bit confused. He wants to argue against me but he doesnt even understand what im saying. It decreases your value because you have a loan to pay back. Wouldnt that cut into your profits? "What you doing, is the smart way to increase your wealth. I say go for it." Besides the gramatical error, he is making an empty statement. How are you going to increase your wealth? He isnt giving you anything valuable. And then he says dont get a home equity loan. This guy doesnt make sense. Obviously everyone needs a mortgage to buy property. And i say it's a bad idea to use a home equity loan as a down payment, as i figure was your plan. Home equity loans are very risky, and salesmen are the ones selling these loans. You have to run the numbers and figure out whats going to happen, and decide for yourself. You might not want to take advice from a guy that attacks another answerer and doesnt give useful information himself. Finance major? what does that mean? Did you just finish your GE and declared finance? Congradulations, maybe you should focus more on the books and leave it to the real professionals.
3. You have an interesting situation. First, stop thinking about the houses as one. I'll be honest, I've never been asked about putting a home equity on two seperate properties but I've never heard of a bridge home equity. The first question I would ask is if a lender could put one home equity on two properties, my guess is no, but it's only a guess. If a lender is unwilling to do so, then your going to have to take a mortgage out on the house that you feel is worth the most. A home equity is not your best method here, many lenders are shutting down the lines of credit and their lending standards have tightened dramatically. You must have over a 700 credit score to get a decent rate and even that is not guaranteed. Even if you get approved for a HELOC, I wouldnt do it unless you find one that can has a segment or lock in feature. For example, say you get a heloc and want 50k, once the draw is made, you call the lender and they lock the rate on the 50k draw so that it does not adjust. The problem with a home equity loan would be that you'll probably be paying a high 7% rate at mininum, over 20 years, so why waste money. The best bet would be to refinance one of the properties, they should lend up to 80%, maybe 85% since it's rental, but you'd be hit with PMI. One word of caution, if you cannot find a lender that will put one mortgage on two properties, you make get asked to refinance or put a home equity on both, if you can't swing it financially, only finance the one property
4. To simply answere your question. Most banks, and leading companies will provide home equity loans upto 75% of the property value. Some banks offer discounted rate if you only borrow 50% value of the appraised value. The second thing, I want to say is, are both of your house on the same deed? If not, you can't use both property as Collateral for home equity loan. you either have to get two different loans on two different house, or just get 75% value on one of the house. I seen some of the previous answere, some people has recommended you not to do this. They think you shouldn’t take equity of your current property to buy new property. Someone also said if you take home equity loan, it will decrease your property value. I say DO NOT listen to them. Ask them if they have any rental real estate? What you doing, is the smart way to increase your wealth. I say go for it. If I were in your situation, I would not get home equity loan, you are better off getting a mortgage. The mortgage interest rates tend to be lower. It’s around 5.5% right now. The home equity loan rates are around 7%. If you have the down payment, then just get a regular mortgage. If you need the down payment, then take $20,000-30,000.00 out of one of your property to use as down payment, and get a mortgage for rest of the amount. Hope that helps.