UPDATE #2: After initially backtracking to a stated $50K loan limit, we were approved today for 70% LTV, based on the appraisal we had done for webstarmortgage. We're now off to the races it seems.
________________
We closed 7/29 on our triplex with webstar. 15 year mortgage, 6.5%, 25% down. Since it's an investor property (non owner occupied), we couldn't quite get it no-cost no-fee, but we were able to pay only $600 out of pocket for title/appraisal.
Turns out that our credit union says they'll do up to a 70% LTV HELOC on investment property. Their index is NOT the prime rate, but the 6 month T-bill rate, currently 1.7%. If you're 720 or better on your equifax FICO score, they'll make the margin a very nice 2.25%! And, they'll let you use proceeds to pay off existing mortgage...another unusual move.
Unfortuantely, there is a floor rate of 5.75%. Still, since the rate updates only every quarter, the t-bill rate is less volitile than the prime, and this leaves us almost 2 points of rate increases before the HELOC rate would rise at all.
I really like HELOC products that allow you to put cash in and pull it out as needed. While the 5.75% rate isn't fixed, I don't think it's likely to rise above 6.5% anytime soon, since 6-month rates have to increase and stay increased more than 2.5% for this to happen. Therefore, I am leaning towards doing this. But I'm interested in hearing feedback from the board before taking the plunge. Thoughts?
DH, I think you can already predict my reaction to this strategy...
I would certainly not replace a 6.5% fixed rate with a 5.75% adjustable! I have several comments:
1 - why didnt you get something like a 3/1 or 5/1 ARM instead of the 15 year fixed? You probably could have gotten one of those for 4.875% or less,with even less volatility...
2- since you are okay with volatility, why not get a HELOC thats at 4.5% or less such as deepgreen, PFCU, others (if these wouldnt work)?? That would save you another percentage point...of course you have to cross the owner occupancy line again...
3- why not get the Merill Lynch Libor Loan with sub-4% rates (I assume b/c of closing costs)
4-why not immediately refi into another fixed 15 , rates should be a lil less...
I appreciate the fact there is less volatility given the "cushion" available" when compared to HELOCs tied to Prime Rate, but just dont see the wisdom of trading a fixed product for an adjustable for only .75% savings now..NO potential for future rate REDUCTIONS, but strong chances for potential increases later.
(1) Webstar (as do most mortgage cos) only does significant rebate points with a fixed loan. No points/lowest fees was my top priority. Perhaps I overlooked a spot that would do a cheap ARM on a non-intestor owned multi-family triplex, but getting anyone to even lend on it was very hard. (Not that we financed it as investor owned for two reasons: 1) wife was somewhat signing unconfortable signing the owner-occupied statements given that she didn't suspect she's stay for a significant period of time, and 2) places like BofI and Webstar refused to consider it as owner occupied once they heard were in an owned SFR and were moving to a triplex...said it would never pass underwriting.)
(2) owner occupancy is again the problem with deepgreen, PFCU, etc. They also are unsure what they'd do on a triplex. The credit union will do it for sure. I'll apply for DGB also, but the other wrinkle there is that you can't arrange to have it pay off your first mortgage, and I don't have an extra 130K to carry that property free and clear for a couple months.
(3) ML is indeed because of closing costs. They also want huge down payments for non-owner-occupied proprerty.
(4) This would be true, except again for owner occupied issue. That adds 1.5 points to the cost of the mortgage at webstar. Given that, we would essentially break even doing a refi. Should rates drop much further, that will change, but that seems unlikely.
I don't seem to have the t-bill historical rate handy, but I'll post it when I can dig it up.
The main attraction to me is NOT the modest .75% rate drop, though there is some talk that they'll lower the floor if rates stay this low much longer. I agree that that's offset by the chance it will go higher over time.
Rather, it's getting to pull money in and out of it, and use it as a cash/asset management tool. This HELOC has an especially generous 20-year draw period, making it even more flexible. I'd like to pay a big hunk of the mortgage off at 6.5%, but not if I can't turn around and pull those funds back out in 2 months if we should find a perfect SFR or something to buy. Were this property an SFR, we could probably do a fresh HELOC whenever, but in this case that's highly problematic. Moreover, the other reason to do it now if we want to do it is that wife's beacon score is currently 723, just high enough before the new loan and a big BT offer hit her credit report.
Even so, I admit it seems a close call to me. If the best rate were 7.5 or something, it'd be a slam dunk.
using these loans as a flexible "cash on call tool" is definitely valuable, my large DGB HELOC has been VERY valuable for that purpose. While I havent yet used it, it has given me the "ability" to make all cash offers on some great-priced condos which were hard to finance b/c the complex is mostly renters...
since you have about a 2% cushion before your rate would move, 3% before they would be worse than the current loan....this looks like one of the better situations to go for a HELOC...of course perform all due diligence..be sure you dont find some fees in there somewhere
Sounds like we're on the same wavelength here SIS. This seems like an unusually good scenario for stacked HELOCs. Thanks for your thoughts, esp as someone who's generally been pro-fixed rates.
Another bonus I forgot to mention--not only are their no fees at all, ever, but with a $5,000 draw at closing, the CU pays for a new title search and appraisal! Hard to believe, and might prove very handy too...especially after we make a few improvements on the place.
Documents went back to Webstar today, we should get funded and finish closing friday. I'll probably check with the credit union next week on pulling wife's FICO and getting stuff started.
OK, while I remain pleased with this CU, they let me down by having me work with the WRONG info for the past week. So, I'm trying to restructure the deal I'm working on. Any ideas?
Actually, they called me back yesterday, and said they would try to change the rules or carve out a different classification to accomodate me! I'm hoping to hear back tomorrow.
As I explained to them, it's actually a hell of a good loan, because they are in 1st lien position, and will be less than 70% LTV when all is said and done. Moreover, my contractor partner's son (also a contractor) has moved in there long term, and is co-managing the place with his dad. Finally, it's improving rapidly. We just finished a new roof (thanks to their buddies, the price was amazing--$4600 with tax for a huge new 30-year high-grade roof) and other high-value improvements (at cost or below) are soon to come.
Moreover, they make a good rate while the floor is in effect, and they get a huge line used (they do full appraisal and title with as little as a $5K draw at close.)
If it does NOT go through, I'll likely try to do a first heloc with someone liek Soveriegn Bank. I confirmed that they'll pay off the first mortgage with their heloc, and do 80% LTV at .51% below prime if you use their free checking account and apply over the net.
But I'm still very interested in other suggestions...
Sovereign : Prime - 0.51(from discounts) seems to be better than DGB(non-grandfathered)
From CA website State Recordation Fees (Taxes) apply in AL, FL, GA, KS, MD, MN, NY, OK, TN and VA and range from $0.10 to $3.00 per $100 of indebtedness or line of credit amount (depending on the State
you are right, on rates, xoneinax. A couple of things:
-Sovereign is 80% LTV, DGB is 90% LTV. Also, in my (and many other) cases, DGB will effectively loan much more than this if the automated appraisal is generous (and less, on the other hand, if it is not.)
-DGB doesn't require tax forms or any other regular docs-Sov does.
-Sov wants it withdrawn from a their bank account to get full discount, dgb doesn't
<< A couple of things: -DGB doesn't require tax forms or any other regular docs-Sov does >>
I applied with Sovereign. They havent asked any tax forms or docs, but maybe thats coming. I called back in response to email, and she said your rate will be 4.74%. I asked about the discount for applying online, and then she said your rate will be 4.49%. Then I asked about the other 0.25% discount and she said you get that if you have a "10000 relationship" with Sovereign. According to CSR that means that you could leave 10000 available on the HELOC and that qualifies. Sounds sorta shaky to me; I thought this discount was just for auto payment from a Checking account.
Thanks for the update xoneinax. You might consider starting a thread about Soverign outlining your experiences, since that is a very strong rate.
That bit about a $10,000 is new...I very much doubt that they'd have it set up so that your discount would vanish if you went below $10,000, but who knows. Please do keep us posted.
Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.
