There are two types of HELOCs, primary vs secondary. Here’s what you need to know about them.
You can get a HELOC from two sources: the house you live in, and, potentially, some of your rental properties.
Primary Home – Primary vs Secondary HELOCs
HELOCs are calculated using LTVs and CLTVs (combined loan-to-values).
To calculate this, the bank looks at the loan balance for your first mortgage, plus what the HELOC will add to it. Then they divide that by the value of your home to get to the combined loan-to-value.
Most banks and credit unions will go up to 90% CLTV, but some do 100% on primary homes.
Using a HELOC unlocks all the equity you’ve established on your home as home values go up over the years.
Rental Properties – Primary vs Secondary HELOCs
Rental HELOCs are a little more limited. They have different LTV/CLTV requirements.
For rental properties, there are some banks, credit unions, and mortgage brokers that will allow HELOCs in second position that go up to a CLTV of 65% to 75%.
Different lenders will limit the amount of secondary HELOCs differently, but most will give you one or two properties.
When To Get a HELOC
Start using your HELOC now, before home prices go down.
If you have a lot of equity in your rental properties or home, you can tap into that now while the market’s still high. This limit will be locked in for 10 years, even as your home value will likely come down 5-10% in the next six to nine months.
If you wait to take out either primary or secondary HELOCs you’ll lose more of your available funds.
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