Can you cash out refi if you currently have a HELOC?

Question

Hey all. I just got through evicting my tenant (stopped paying and wrecked the place. pretty nasty) in an owner occupied duplex and am taking out a HELOC to help pay for the rehab on the tenant side. I've done a lot of work on my side so I should have a decent amount of equity.

I can safely afford to pay off the HELOC over time, but I was wondering, if I force a bunch of appreciation with the rehab, is there anything holding me back from then trying to cash out refinancing the house to

A) pay back the HELOC (and save myself some interest)

B) Hopefully have a bit of cash left for myself so I can start saving for the next duplex down payment.

Seems too good to be true so I wondered if there is some rule barring it.

(Currently have FHA mortgage on the home)

Thanks so much for everyone's help here!

Kyle J. · Answer

You must already have a decent amount of equity if you're able to take out a HELOC on top of your FHA loan, so good for you. If you increase the value even more, you could do a cash out refi and pay off the HELOC (and the FHA mortgage too).

If you just recently took out the HELOC you might have a prepayment penalty (both of my HELOCs have penalties if I close them in the first 3 years), but it's a small penalty and would likely be offset by the interest you'd save. Other than that, the only real downside I see to your plan is that you'd have to start paying interest on the money you pull out that you'd be "saving for the next duplex down payment" as soon as you get it. But hey, if it ultimately helps you accomplish your goal and you're not sitting on it for too long, it might be worth it. Just something to be aware of.

Jj Horst · Answer

Thanks for the confirmation Alexander. Man I guess I just don't know why no one told me about this before. Seems like what everyone would want to be doing all the time. :)

Yeah the numbers definitely make sense, so much so it made me question myself haha.

Alexander Felice · Answer

you want to take out a heloc against the equity of the home, then refi the home after it's been rehabbed, and pay the heloc back?

This is not impossible at all. done every single day.

The devil is in the details, make sure the numbers really work.

Can you cash out refi if you currently have a HELOC?

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