How Does A Home Equity Line of Credit Work?

Do you own your home? Do you know how much your home is worth? A Home Equity Line of Credit is great way to fund your first real estate property and begin building your real estate portfolio!

A Home Equity Line of Credit, also known as a “HELOC”, is a second mortgage usually with adjustable rates so the payment changes over the term of the loan. A Home Equity Line of Credit allows you to pull money out of your home to invest in anything you would like to purchase( Like a 20% down payment on an investment property).

Most banks and credit unions allow you to pull 80-90% of the value of the home.

For example, if you have a $300,000 home with a loan owed of $150,000 there is $150,000 of equity. No, you dont have $150,000 to spend. Remember, a bank will only allow you to take 80-90% of the value of the property. If a bank allows 90% of the $300,000, that is $270,000. The $270,000 minus the amount you owe to the bank of $150,000 leaves you with $120,000 to use. Depending on your market and real estate strategy you can fund 3-5 properties with that amount of money.

Investment properties require 20-25% down payment. However, many new investors purchase a primary residence with a 3-3.5% down payment where they live for 12 months before moving into a new home turning there previous home into an investment property.