Line of Credit

[tdrealestate]

Hello everyone

I just recently apply for a line of credit for $18,000 dollar, and keeping it there until i am ready to make my first purchase.

I would like to double or even more my line of credit in the next 6 months, is this a realistic gold.

Any suggestion is welcome


Thanks

 

[EdRenkema]

QUOTE (tdrealestate @ Aug 6 2008, 10:43 AM) Hello everyone

I just recently apply for a line of credit for $18,000 dollar, and keeping it there until i am ready to make my first purchase.

I would like to double or even more my line of credit in the next 6 months, is this a realistic gold.

Any suggestion is welcome


Thanks

If this is a secured line of credit on your home - this is usually the best way - then you should register it for the maximum amount. If that is the maximum hopefully it is readvanceable allowing you to pay down your mortgage while allowing you to increase your line of credit at the same time.

 

[tdrealestate]

QUOTE (EdRenkema @ Aug 6 2008, 08:37 PM) If this is a secured line of credit on your home - this is usually the best way - then you should register it for the maximum amount. If that is the maximum hopefully it is readvanceable allowing you to pay down your mortgage while allowing you to increase your line of credit at the same time.
Hi Edward

Thanks for your reply to my posting, i am currently renting and want to purchase a condo as my new home. Also the line of credit is unsecured, do you have any more suggestion which fits my situation.


Thanks

 

[EdRenkema]

QUOTE (tdrealestate @ Aug 7 2008, 02:44 PM) Hi Edward

Thanks for your reply to my posting, i am currently renting and want to purchase a condo as my new home. Also the line of credit is unsecured, do you have any more suggestion which fits my situation.


Thanks


Please go talk to a good realtor and more importantly a mortgage broker. I can`t say this for sure but I think increasing an unsecured line of credit will actually decrease your beacon score. In any event the advice you are asking for is readily available from any experienced mortgage broker who works with investors. Make sure you inform them of your investment goals over the next 5 years. If you want to purchase a principle residence find a good mortgage broker, ask for references and do your due diligence on them first.

 

[OlegP]

You can call your bank (the issuer of your line of credit) and request a credit limit increase. Because it is not secured, it works more or less like any credit card. The bank will pull your credit file (hence registering an inquiry) and see your credit score. They might ask you why you need this extra limit, what is your income, etc. Keep in mind that many lenders do not like to increase the initial credit limit until they have had your business for at least 6 months - which allows them to build what they call "on-us credit history". So if you can wait six months, your chances of getting a limit increase will be better at that time.

A good mortgage broker may be able to help you get another unsecured line of credit with a different lender. HSBC frequently offers such credit products, as do Canadian banks (CIBC keeps calling me).

As far as the impact on your credit score, keep in mind that frequent inquiries (lenders pulling your credit bureau file) as you apply for cards, loans, line of credit, mortgages, etc. within 3, 6, and 12 months periods, number of new credit lines opened within last 12 months, and high utilization of your credit products absolutely WILL decrease your credit score. So you don`t want to apply for too many cards, credit lines at once - try to spread it over time, and apply for what you need only.
Also, I would not go over 75% of my credit limit on any given credit product, as it deducts points on your Beacon score. For instance, on your line of credit of $18K, I would not go beyond $13K.

As a general comment, I would add that while financing your purchase with a line of credit is a viable option, it makes positive cash flow so much harder to achieve. If you don`t have a house, your line of credit probably requires that you pay 3% of the balance monthly, which puts further pressure on the cash flow.

Hope this helps.
Oleg Pereslegin
[email protected]

 

[TommyK]

QUOTE (tdrealestate @ Aug 6 2008, 09:43 AM) Hello everyone

I just recently apply for a line of credit for $18,000 dollar, and keeping it there until i am ready to make my first purchase.

I would like to double or even more my line of credit in the next 6 months, is this a realistic gold.

Any suggestion is welcome


Thanks

Like everyone said in this post, having much higher credit limit does not always work well for you. Banks do not like seeing downpayment coming from line of credit. You need personal savings (now at least 5% down plus closing cost).

Plus, I have been told by some mortgage brokers that bank look at how much you can spend potentially and work out a number to include in your total debt service ratios (your total income vs debt). Don`t quote me on the details on this though. Talk to a broker first before you increase your limit. Sometimes you might be even advised to LOWER your limit!

Don`t be surprised.

 

[tdrealestate]

QUOTE (OlegP @ Aug 8 2008, 12:46 PM) You can call your bank (the issuer of your line of credit) and request a credit limit increase. Because it is not secured, it works more or less like any credit card. The bank will pull your credit file (hence registering an inquiry) and see your credit score. They might ask you why you need this extra limit, what is your income, etc. Keep in mind that many lenders do not like to increase the initial credit limit until they have had your business for at least 6 months - which allows them to build what they call "on-us credit history". So if you can wait six months, your chances of getting a limit increase will be better at that time.

A good mortgage broker may be able to help you get another unsecured line of credit with a different lender. HSBC frequently offers such credit products, as do Canadian banks (CIBC keeps calling me).

As far as the impact on your credit score, keep in mind that frequent inquiries (lenders pulling your credit bureau file) as you apply for cards, loans, line of credit, mortgages, etc. within 3, 6, and 12 months periods, number of new credit lines opened within last 12 months, and high utilization of your credit products absolutely WILL decrease your credit score. So you don`t want to apply for too many cards, credit lines at once - try to spread it over time, and apply for what you need only.
Also, I would not go over 75% of my credit limit on any given credit product, as it deducts points on your Beacon score. For instance, on your line of credit of $18K, I would not go beyond $13K.

As a general comment, I would add that while financing your purchase with a line of credit is a viable option, it makes positive cash flow so much harder to achieve. If you don`t have a house, your line of credit probably requires that you pay 3% of the balance monthly, which puts further pressure on the cash flow.

Hope this helps.
Oleg Pereslegin
[email protected]

Hi Oleg

Thanks for the advise especially not using up 75 percent of my line of credit, and I will kept that in mind for my credit cards also.

I could wait for 6 months, and I might use the line of credit to pay my REIN membership in full when I join REIN and pay my monthly installment to the line of credit instead to estabalish a history with the bank, and once i paid off the balance with the bank. I would feel better to ask the bank for a line of credit increase when the appropiate time arrives.

The reason why i am inquiring for a line of credit increase, is to assist me to buy my first investment rental property. Basically to get the ball rolling in my real estate investment career, and then have enough rental properties to buy my condo as my new home in the next 2 to 3 yrs, including a new car, and the ability to travel.

Let me know, using my line of credit to purchase my REIN Membership and then pay the monthly installments is a smart move.


Thanks

 

[tdrealestate]

QUOTE (TommyK @ Aug 9 2008, 04:51 PM) Like everyone said in this post, having much higher credit limit does not always work well for you. Banks do not like seeing downpayment coming from line of credit. You need personal savings (now at least 5% down plus closing cost).

Plus, I have been told by some mortgage brokers that bank look at how much you can spend potentially and work out a number to include in your total debt service ratios (your total income vs debt). Don`t quote me on the details on this though. Talk to a broker first before you increase your limit. Sometimes you might be even advised to LOWER your limit!

Don`t be surprised.
Hi Tommy

I don`t have a mortage, and for me to save up 5 percent down might take me years and I do not want to take the traditional route of purchase my condo, I know you mentioned the bank do not want to see my down payment coming from my line of credit and I could see your point.

Because the bank don`t want to see me using a loan (line of credit) they offer me to use to obtain another loan (mortage) from them.

I want use my line of credit to buy my first rental property and use the equity from my first rental properties to buy my second rental property, and use equities from one rental properties to buy other future rental properties and eventually a condo for my own home.

I just want to use my line of credit to get the ball rolling, since I am not planning to do anything until i join REIN and to get more educated. I feel more comfortable to talk to a mortgage broker who is a REIN member. Since I do not know any mortgage and don`t want to be given any incorrect information which could lead to any bad decision making.

Thanks about the advise your income vs debt ratio, i believe read this in one of the REIN books.

If you think of anything please let me know


Thanks

 

[OlegP]

QUOTE (tdrealestate @ Aug 11 2008, 11:27 AM) Hi Oleg

Thanks for the advise especially not using up 75 percent of my line of credit, and I will kept that in mind for my credit cards also.

I could wait for 6 months, and I might use the line of credit to pay my REIN membership in full when I join REIN and pay my monthly installment to the line of credit instead to estabalish a history with the bank, and once i paid off the balance with the bank. I would feel better to ask the bank for a line of credit increase when the appropiate time arrives.

The reason why i am inquiring for a line of credit increase, is to assist me to buy my first investment rental property. Basically to get the ball rolling in my real estate investment career, and then have enough rental properties to buy my condo as my new home in the next 2 to 3 yrs, including a new car, and the ability to travel.

Let me know, using my line of credit to purchase my REIN Membership and then pay the monthly installments is a smart move.


Thanks

Using your line of credit to pay REIN Membership is a good idea. Since this is a business expense, you will be able to deduct a portion of your cost and interest when you file your income tax return. Interestingly, banks view education and travel as good reasons for a limit increase.

I understand your rationale behind buying the first investment property using your line of credit. When you become a REIN member, you should learn about Joint Venture partnerships - this technique really speeds up your investments.