which methods should I use, heloc or full loan?

Question

Hi,

I posted questions a while ago but unfortunately I didn't get the right answers or even close to it. I understand you all can be busy. Maybe my questions weren't clear. Bottom line is answers were irrelevant, so here I am trying again one last time.  If you are too busy, I suggest  skip my questions. It is better not to get any feedback than getting odd ones;)

Trying to buy town home to live in, price wise, between 350k-450k,

I have $85k "cash down payment" with excellent credit score.

Question is

I have rental property that will be paid off within 2 years, Of course, I will have to include $85k to do that.  Once it's been paid off, I will take out HELOC to use towards down payment on a new town home or to pay big chunks of payment towards new home.  If HELOC is used just for down payment,  I will be able to make  some payment on a town home too with rental income coming in.

OR

Should I forget about paying off current mortgage, use the $85k down payment towards buying town home?   Now, I am only considering this route because I want to get in before home price goes up more.  But is this really a good idea????

Former is enticing because it will enable me to pay off one property and rental income will pay for the HELOC but then I still have HELOC on top of payment on a new home.

Hope I made my questions more clear this time.

So which route should I take? Thanks in advance.

Matt Crusinberry · Answer

@Julie J., I did answer your question, and I will do it again... The answer is NO! "... I would recommend you put your 85k toward your town home." If all you want is your house, and not to continue to use it for investment, I would just put it toward your house. It doesn't make sense to pay off the rental house early, to take out another loan (unless you can get a significantly better rate than you currently have on your rental). If your rental is making you money than use that to help with your new house. If you can get a better rate on your rental than I would pay off the rental house with the 85k and refi for 70-80% on a 30 year note and use that money for your property. This is a better use of your capital, as you will get a better deal via refi.

Interest rates are only going up for the foreseeable future, so I would recommend you find a good deal if you are going to purchase a town house (or a house of your choosing). Although, housing prices should be coming down as things start to slow down. It's different in every area, but I would just shop for a good deal and buy before the rates go up further. Good luck!

Julie J. · Answer

Hi Matt

Thanks for your feedback. It sounds like we're getting close to  what I have been expecting to hear.

I know I don't need to pay off to get heloc. I am only doing it to get more out of home.

Now, do you think it makes sense to pay off 1st home to take as much or at least down payment for the new home using heloc?????  That way, rental income will cover at least HELOC payment, and all I have to worry about is making mortgage payment on a new home.

Non-heloc loan's Interest may be cheaper but if I can use $85K to pay off the 1st home, rather than for downpayment and take out heloc for downpayment and make heloc payment with rental income, won't that be better use of the capital? I don't know.

Lastly, what's your thoughts on real estate price?  Should I wait to buy?

Matt Crusinberry · Answer

@Julie J., What is your goal? Is it to own your own home, and live in this location forever? How old are you, and what stage are you in your life? The reason I ask is in part for you as an investor and you as an individual, however these questions are rhetorical. Most people on here are going toward financial freedom or have already made it and are continuing to build relationships to invest more. You may want to keep that in mind, thus some of the responses are going to be geared toward that end (i.e. the best return on your investment).

So, I am going to assume you are not planning on making this town home purchase as an investor. I am also going to assume that you just want to have a nice place you call "home." Under those pretenses, I would recommend you put your 85k toward your town home. You will get a better interest rate and lower payments from financing a home vs. HELOC. I would also suggest you look into obtaining a HELOC on your rental if that property can support it. You do not need to have the property all the way paid off to pull out equity. I would suggest you contact a lender and find your rates for both avenues, and run your numbers off of that (to include putting a second lien on your rental). I hope this helps, and let me know if you require more reasoning. Good luck!

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