Penfed's Heloc Loans: Are Rental Properties Eligible?

PenFed Credit Union offers a Home Equity Line of Credit (HELOC) product, which allows borrowers to access their home's equity without refinancing. This product is available for both owner- and non-owner-occupied properties, including rental and investment properties. However, there are certain requirements and restrictions for obtaining a HELOC on a rental property through PenFed, including credit score, debt-to-income ratio, and limitations on the number of financed rental properties.

PenFed HELOC requirements

PenFed's HELOC (Home Equity Line of Credit) offers a flexible way to access your home equity over time and pay interest only on the funds you withdraw. It is important to note that rising interest rates can increase your monthly payments. PenFed's HELOC stands out for its fast closing, which can be completed in as few as 5 days to 15 days.

To apply for a PenFed HELOC, you must be a member of the credit union and meet specific requirements. Here are the key PenFed HELOC requirements:

Credit Score

PenFed requires a minimum credit score of 700 for its HELOCs. A strong credit score of 700 or higher is necessary to qualify and gain access to better rates.

Debt-to-Income Ratio

PenFed will evaluate your debt-to-income ratio, which should generally be within acceptable limits, typically 36% or less. Some lenders may accept a higher DTI.

Property Insurance

Property insurance is mandatory for the HELOC. The property must be fully livable, with no safety issues. For example, it should not have missing rails, open walls, missing appliances, missing bath fixtures, or an unfinished pool.

Loan Amount

PenFed offers credit lines ranging from $25,000 to $1 million. The total indebtedness for all PenFed Equity and HELOCs combined cannot exceed $500,000.

Closing Costs and Appraisal Fees

PenFed covers most closing costs associated with the HELOC, but borrowers are responsible for any city, county, and/or state taxes if the property is located in specific states, including Florida, Louisiana, Maryland, Minnesota, New York, Tennessee, and Virginia. If an appraisal is required, the borrower must pay the non-refundable fee, which typically ranges from $550 to $850 but can sometimes be higher.

Annual Fee

There is an annual fee of $99 assessed on each account anniversary for the HELOC.

Income and Employment Verification

You may need to provide income verification, such as pay stubs and W-2s, and disclose additional details about your current debts.

It is recommended to refer to the PenFed website for a comprehensive list of requirements and consult with their representatives for specific details regarding your situation.

Rental property HELOC lenders

PenFed offers a Home Equity Line of Credit (HELOC) that allows you to access your home's equity without refinancing. However, it is not clear whether this applies to rental properties.

When considering a rental property HELOC, it is important to compare different lenders and their requirements. Some major banks and local credit unions are willing to work with real estate investors, and it is worth including your regular mortgage lender, business bank, or credit union in the conversation. Financial institutions with which you have an established relationship may be more flexible and offer preferable rates.

• Hurst Lending: Offers an innovative product called the Equity Leverage Line, which allows you to leverage the equity in your non-owner-occupied properties. This product is designed to help investors grow their portfolios by purchasing additional rental properties.
• Figure: Offers a HELOC that can be funded in as few as five days, similar to PenFed's fast closing option.

When exploring rental property HELOC lenders, it is essential to carefully review the requirements, interest rates, and potential risks associated with each option.

HELOC vs home equity loan

PenFed offers a Home Equity Line of Credit (HELOC) that allows you to access your home's equity without refinancing. You can draw on your HELOC as often as you like and use the funds for major expenses. PenFed's HELOC stands out for its fast closing, which can be completed in just 15 days, and it also offers a fixed-rate option with no origination fees or minimum initial draw. However, borrowers will need to join the credit union and pay an annual fee of $99.

Now, to understand the differences between a HELOC and a home equity loan, let's delve into each option in more detail:

HELOC (Home Equity Line of Credit)

A HELOC allows you to access the equity in your home through a line of credit. You can borrow up to a fixed amount as needed, and you only pay interest on the funds you withdraw. The interest rate on a HELOC is typically variable and tied to a benchmark rate, which can adjust over time. The borrowing period usually lasts for a set term, often 10 years, followed by a repayment period of up to 20 years. HELOCs offer flexibility and ongoing access to funds, making them suitable for managing cash flow and unexpected expenses.

Home Equity Loan

A home equity loan, on the other hand, provides a lump sum of money upfront. It is a one-time withdrawal that you pay back over a fixed repayment period, usually with a fixed interest rate. The repayment structure is more predictable and easier to navigate, making it a more straightforward option. Home equity loans are considered a second mortgage, and as a result, there may be significant closing costs and fees involved.

In summary, the key difference between a HELOC and a home equity loan is that a HELOC offers a revolving line of credit with flexible access to funds, while a home equity loan provides a one-time lump sum with a more predictable repayment structure. The choice between the two depends on your specific financial needs and preferences.

HELOC interest rates

PenFed's HELOC (Home Equity Line of Credit) offers a fast closing process, which can be completed in 15 days. It also provides a fixed-rate option, no origination fees, and no minimum initial draw requirements. However, borrowers need to join the credit union and pay a $99 annual fee. The advertised introductory rate for PenFed HELOCs was 0.125% below prime on the day it was checked.

Some financial institutions, like Bank of America, offer the option to convert a portion of the HELOC balance to a fixed-rate loan, providing protection from rising interest rates. Others, like TD Bank, offer interest rate discounts if you have a checking account with them.

It is important to note that HELOC interest rates can increase over time, impacting your monthly payments. Rising interest rates may result in higher monthly payments, requiring discipline to avoid overspending.

HELOC eligibility

To be eligible for a HELOC (Home Equity Line of Credit) from PenFed, you must meet certain requirements. Firstly, you need to have equity in your home, which is the difference between your home's current market value and your outstanding mortgage balance. Lenders typically require borrowers to have at least 15-20% equity, ensuring that your mortgage balance is 80-85% or less of your home's value. This requirement safeguards your financial stability, as maintaining a certain level of equity buffers you against downturns in the housing market.

Another critical factor in HELOC eligibility is your credit score. While the specific credit score requirements vary across lenders, a higher credit score is generally advantageous. A score of 620 or above is often considered the minimum, with a score of 680 or higher being more desirable. A strong credit score demonstrates your financial reliability and can help you secure more favourable loan terms and lower interest rates.

In addition to equity and credit score, lenders will evaluate your debt-to-income (DTI) ratio, which measures your monthly debt payments (including your mortgage) relative to your income. Maintaining a low DTI ratio, typically below 43%, improves your chances of HELOC approval. Lenders assess this ratio to determine your ability to handle additional financial obligations and make timely repayments.

When applying for a PenFed HELOC, you should also be prepared to provide various financial and personal documents. These may include identification, social security information, bank statements, pay stubs, tax returns, and mortgage documents. PenFed also requires property insurance for HELOCs. It's important to note that PenFed has specific eligibility criteria for properties located in Texas, with a maximum CLTV (Combined Loan-to-Value) of 80% on owner-occupied properties.

Frequently asked questions