Home Loan vs. HELOC to finance my first deal?

4 Replies

Hello All,

I've found a deal I'm interested in and am planning to finance it using the equity in my primary residence (currently, I have no mortgage on it so this would be the only loan against it). I thought a HELOC would be better than a home loan because it is "reusable" but the variable interest rates make me nervous given the current rate environment. My question is, is it worth taking on the risk of variable interest rates to have to flexibility of a HELOC (i. E. As soon as I refinance this first property, the full amount of the HELOC will be available to use again and will not hold up future deals) or is the loan with the fixed rate better, despite the fact that I have to reapply every time I want a new one, given we are currently in a "rising" interest rate environment?

I'm in the same situation, and personally I used a Heloc. I like having no mortgage payment, but being able to use the equity in my house as temporary investment financing.

@Megan Clancy This is what I did: I used the equity in my home via a HELOC and made a cash purchase. I plan to refi in a few months to put the money back on the LOC. I chose the HELOC over a home loan as it's reusable.

You can shop around for banks that provide a "good rate". Many banks have special rates throughout the year. It definitely helps to look at multiple banks. I'd make sure the payments coming in are more than the expenses going out each month for the payments. If you're holding for 6 months (for rehabs or whatever), your interest might not be a whole lot for a 6 month duration. Factor that when you run the numbers and see if you're still making a profit vs getting a home loan where you're stuck with a mortgage for a long time. Also, HELOC doesn't have closing costs, whereas a home loan does.

Thanks for the input. So far, the HELOCs have turned out to not be enough money to cover what I need and/or the interest rate is too high to cash flow anyway. I've been approved for one loan that has a low enough interest rate to allow for decent cash flow and has no prepayment penalties if I decide to sell the house before the loan term is up, which I'm happy about. I just would have preferred to have the "reuseable" option so I don't have to keep dinging my credit every time I find a new property I want to invest in.

After looking through the official approval of the home loan that I thought was a really deal, after all the closing costs and fees, the available spending amount is actually about what the Available spending balance of the HELOC will be, which is a bit tight for my budget

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