HELOC, or refinance??

4 Replies

Hi all. Hate to start on a cryptic note here, but my father passed away about a year ago. When that happened, I inherited a condo (free and cLear) which appraised for about $165k. I would like to use it to buy another property which I plan to rent out and hold. I have a handful of things I’m unclear on and can’t find anyone to answer! Hence the post. I have a loan officer telling me he doesn’t recommend a heloc because of the variable interest rate, but when listening to the podcast, I’ve heard the guys favor a heloc and it just seems like the top choice of people I’ve talked to in similar situations. I’d like to buy a multi family home but don’t really know what my budget should be because I don’t exactly know how much I’ll have to put down. What are the pros and cons of each type of loan, and is it possible this loan officer would make more money if I took a conventional loan over the heloc?

@Joe Einbinder   Hey Joe, Welcome. 

If you are living in the condo and have decent income and ok debt to income ratio I would get a conventional loan on a rental property and leave the condo alone. After you close on the new rental property and have a tenant in, then I would do a heloc on the condo and use the heloc to by a house and BRRRR it. That way when your done, you have the condo, 2 rentals, and two conventional loans and still have your heloc available for the future. One con of this option is it reduces the buy it fast option you could have if you did the heloc first. The heloc could open up quick close (cheaper) options that might get you a better deal. All that really depends on your market.

I am not sure if your loan officer would get a better payday but a safe bet is that if they do not have investments themselves I would steer clear of their advice until talking to others with investment experience.  

@Ryan Detig thanks for the response! So as of November I’ll be moving out of the condo to rent it out. You’re saying take a conventional loan, use it to buy a rental and not pull the equity from the condo at all? My loan officer does have about 5 investment properties himself by the way.

Joe,

I by no means have any answers, I am really looking on this thread for the same reason you are. from what I understand refinancing and a HELOC both have closing costs and the fees associated. I don't know the exact cost of both and which is better, but I know they are similar in this regard. Now, a HELOC can be a couple of different things. First, you can open a HELOC and just pull out the money you need let's say 20k for 20% down on a 100k loan. second, you can refinance the condo completely and pull all the equity out to use to invest. you have to figure out how much to leverage and if the numbers work. My biggest question is whether an interest rate on a HELOC is comparable to the Interest rate on a 30 yr fixed. One benefit I have seen to a HELOC is that you can set your direct deposit up to deposit into the HELOC and use it as your checking account perse, and naturally, you can pay off more, and faster. To answer your question directly I am not an expert but I would open a HELOC, once it is open it is always open and you can dip into it whenever and only pull out enough equity to finance your down payment that is if a bank will loan to you.

- John W.

I am in quite a dilemma as I was so set on a HELoC to fix my current residence and put down the 20% on an investment property ... hopefully having enough leftover to renovate a buy and hold triplex I've been eyeing.  If I go the HELoC route, there are no closing costs, no annual fees and no appraisal fee (about 5.89% interest rate.  If I go with a cash out refi, they'll roll the closing costs, appraisal and any other fee into my loan.  If I cash out about $40k, I'll save about $187 monthly that I can pay down the principal or keep stacking for future needs.  My issue is starting over as I've been in my home for 7 years.  The loan officer said that if I pay it down using that extra $187, it'll shave about 7 years off of my homes mortgage.  Keep in mind that my current interest rate is 3.75%. IDK WHAT TO DO :(