I had a few questions on how these work in relation to credit and reporting.. Assuming I get a home mortgage and buy my first house.. let's say I put down $50k and buy a $500k house.. doing a 80/10/10. If I would like to get an equity LOC, how does this work? I know many banks offer it as well as my credit union.. assume my credit is perfect, how much would I get when I apply? 1) Would I be able to get $50k or more usually? 2) How long would I need to wait before I can apply for the equity LOC AFTER actually closing escrow/moving in, etc.? 3) After I get $xxx amount for the equity LOC, how is this reported and how quickly? Where is it reported? Does it go on your CR? Is it like a 'loan' or LOC don't report or it just depends on the bank? Or is it a public record? 4) If it does get reported on the CR only, can I go out and get another equity LOC from another location the next day/same day and try and get as many as I can? The reason why I ask is because I want to be as liquid as possible.. I would like to go into real estate investing.. and getting my first home (to live in), then turning around and getting several equity LOC if possible is what I have in mind.. can anyone assist? Thanks..
all of your answers to your questions are right. I know some one who did all of the above. It really does depend on the company offering you the credit. some go as a 125 percent of value. But be very careful my friend had to file bankruptcy getting lines of credit to buymore "investment property" I suggest that if you can save money and use as a down payment because it could be a slippery slope if you do not study the process of using equity to buy investment property. good luck. Oh yeh after lookning at he interest rate he was paying on much of his lines of creidt his profit margin prove to be much lower than anticipated.
I understand.. I definitely don't want to overextend myself perhsay.. But I just wanted to confirm if an equity LOC works the same way a credit LOC works.. meaning, that other banks do NOT know that I have been extended on one my home already.. so I can literally go out and get a equity loan from multiple places all before it is reported on my credit reports.. so then I can have liquid at my disposable in the case I need it. I plan on flipping properties.. so thats why I would need the cash. Any one else have thoughts on my questions at all??
Ender I have a HELOC (home equity line of credit) with my credit union and it is reported to all three. It is added in with your real estate total. Also when I applied there was an issue about equity and they did not want total RE loans to go over 80%, so there was an appraisal. I am not sure if those companies that do 100% - 125% of value loans report to the CRAs. KK
KK - was it reported as a 'public record' however? Let's assume that your your HELOC.. and went and applied somewhere else that same day, would it be possible for you to get another HELOC from another bank that you are a customer at ? How would they know?
Ender, In my instance, if I would have applied at another financial institution, they would only know that I applied for "credit" at XYZ Credit Union on xx/xx/xx. That is because my credit union did an inquiry and labled it "permissible purpose". There was no refernece to real estate on the inquiry. The second place would have to guess or ask what the inquiry was for. And my credit union only did an inquiry on Experian, so if I would have gone to another institution that pulled Equifax only, they would not have known about my search for credit either. So what you are asking is definitely possible. My credit union only reports the loan to Experian. Here in this city, it took about 8 to 10 weeks to receive the recording information from the county recorders office. As for the "public record" question, I am not sure what you are asking. On Experian it is listed along with all of my non-delinquent tradelines as an 10 year installment loan. On Credit Expert (Experian) it is combined (dollarwise) with my mortgage in the real estate total. My only public record is my way too old (9 1/2) year old BK. (Hurry up August so it (BK) can go away) So if you research correctly, in a two month period you can probably get more that one HELOC. Each will want to inform your insurance company also. One thing my credit union would not go for more than 80/20. I have been lucky and the neighborhood values have increase tremendously in 5 years. I came in with 10% down and now with both loans, it is 60/40 LTV. Good luck and be careful. The economy is kinda crazy right now. KK
Weird - I posted a reply, it previewed, then it never showed up. Ender- my $0.02 worth -- The LOC takes a few months to start showing on your CR, but since it's a secured line of credit (by a lein on your house) the bank will run a title search. They will also see the other inquiries on your CR and if they see other real estate inquiries, they will ask you about them (any fibbing at this stage could be construed as bank fraud - serious stuff). Within a day or two of closing on the line, the lein will be recorded at the registrar (or clerk) in your county. This isn't the same thing as a CRA "public record" - it's a public record kept at the local government that anyone can walk in and look at. If you closed on 2 lines, the bank would probably find out that they weren't infact a 2nd but a 3rd. In that case you'd be in deep doo-doo, again possibly facing a bank fraud charge (you agreed that the LOC would be 2nd and that you would do nothing to jeopardize the bank's security or leinhold position). Because you're now playing around with the security -your house and the various leins - it's possible the 1st mortgage holder would find out and call your load (due in full, immediately) because you jeopardized the security of their lein. Same thing can happen if a contractor slaps a mechanic's lein on your home- it comes ahead of the 1st mortgage and the bank has the option of paying off the contractor to remove the lein and going after you - or calling the loan due in full. Lastly - there's a mandatory 3-day (business day) waiting period between closing and fund disbursement. I'd bet things would come out during that 3-day period. SO ... don't do it. I've done LOC's several times - once it was "pre-approved" when we did a refinance on the 1st, and we did both closings at the same time. Most banks will let you do a 90% LTV at decent rates (80% for 1st, 10% for 2nd). You can go to 100%, but the rates are a little steeper (in my area, 70%=prime - .5, 80% = prime, 90% = prime+1%, and 100% = prime + 2%. It makes a lot of sense to avoid PMI (which isn't deductable) to go the 90% route, especially with how cheap money is. One other word of caution- most of my revolving equity LOCs have reported correctly ("HELOC" or "secured by real estate") - but they still come up as "REVOLVING". My last one- with Morgan Stanley (Discover) reported as a REVOLVING LOC. Using $140k of a 150k line that was 3 months old did a number on my scores (like -75 points!). After a few disputes, they deleted it (fine by me!). So - watch for how it reports when you eventually do it. Good luck, mj
