HELOC question...

I recently refinanced my HELOC with another bank. Long story short, the bank manager never closed my last HELOC, meaning I currently have 2 HELOC’s each at $180k. What would happen if I used both lines? I’m thinking with hard money in the 15 - 20% range, I now have an instant line at prime, and I should leave the original open. Thoughts?

I think if you try to use both, one of the banks may catch on and shut it down. Be careful you don’t end up losing both of them.

Your DTI will go through the roof and scores will drop…


Scott Miller

How could they shut it down…just curious.

Will DTI drop even if, say, 18% was being earned on both HELOC’s? Why would scores drop if money was being made on each?

The credit bureaus view HELOCs like credit cards; once you start creeping beyond 30-35% of the available credit, your scores will take a hit.


Scott Miller

Not to mention that by using both credit lines you could end up with an LTV higher than 100%. Meaning if you had to sell your home you would owe more than it was worth.

How much of a drop in scores are we talking about? What if I used 30 - 50% of each?

A local investor is looking for hard money paying 20% at close in 45 days. These properties are between 12k and 30k.

You’re talking about using heloc money secured by your primary residence to fund hard money loans on investment properties? What if your hard money borrower cannot sell the property and defaults. How are you going to repay the heloc or just service the debt? It may be an attractive spread between the heloc and the hard money but it is a risky proposition.

The borrower is someone who I’ve done deals with in the past, and has been good to work with. The loan is secured by the property (very undervalued). I could make a profit by just listing it as is in case of foreclosure.
My home is paid off, and the equity in the home is useless to me unless I use it.

Investing in the S&P 500 will give you better returns than prime as well. Have you considered that. Be careful; you know what they say about a fool and his money soon parting…

I would think you could lose your money a lot easier through the stock market than through real estate. As I stated, the investor is a solid, reputable guy in our area…one I’ve worked with in the past.

I couldn’t tell you how much your scores will drop; that is as guarded asecret as the Coke recipe.

I can tell you that credit scores are calculated by way of a weighted decision; 30% of the decision is based upon outstanding balances/amounts owed.

If you are determined to extract equity from your primary residence to finance your real estate investment business, why not crawl before you run and keep your DTI and scores at their optimum (by not exceeding the 30-35% margin)?

Just a thought…


Scott Miller

I’m well over the 50% margin on one HELOC and my score only dropped 10 points or so.