HELOC vs Refi on Primary Residence

2 Replies

I am currently looking into refinancing my primary residence that I have had for about 1.5 yrs now. Im seeing estimates on all the real estate sites (zillow, realtor.com, etc) that my house is worth about 20-30k more since I bought it which is insane! I am curious though... Would it be better to do a HELOC?

The goal is to invest in my 1st STR within the next 1-2 months and currently I am in the market for a place worth up to about 350k if financing goes as we hope (fingers crossed)... That being said though, I could increase my budget for a hopefully much nicer property by a decent margin if I do a HELOC or Refi.

What do y'all recommend and why?

Also, if you have any good leads on a STR in my price range, please shoot me a message! I would love to discuss more!

The nice thing about a HELOC is that you don't pull the money out until you need it.

The downside of a HELOC is if the banking system gets pinched, they can cancel a HELOC at a moments notice, so be sure to take the cash out well before any closing. A HELOC should also be considered a short-term financing source because they often have balloons and automatic termination dates. If you max out your HELOC, it would be wise to soon-after refi your home into long-term debt.

@Ben Scarborough , I agree with Greg. A HELOC is great because your cost to close will be minimal and you only draw what you need. And, as he said, they are like a credit card: your availability can be pulled at any point. My HELOC with Huntington is a 10yr term from opening line, interest only during those 10 yrs, and then 20yr term and am for any balance outstanding at end of 10 yrs, so if the money is out, they cannot make me pay it all back in short notice (I hope).

And like Greg mentioned, have a plan to get that money paid back down. I use mine for flips, but would for BRRRs too, where there is a clear sale or refi to pay off the HELOC.

Last bit, most HELOC with major banks will be available up to 80% LTV on your primary. Assuming you borrowed 80% when you bought, you really only have access to $16-24k in a HELOC or refi. If you only put 10% down when you bought, you might not have enough equity, even with the increased value, to secure a HELOC. There might be lenders that will go over 80%, but when I was shopping: Chase, Huntington, 5/3 all capped at 75-80% total LTV.