Should I do a cash Out first and then a HELOC?

Question

Hello everyone! Hope everyone had a fun and great Memorial Day weekend! In need of some help and would definitely appreciate it! Thanks In Advance! So I’m

Thinking of refinancing my home which I bought for under market value and it’s approaching 6 months, but my the lender is motivating me to do a Cash out refinance first at 80% LTV which is their highest, which will remove PMI as well as give me a better monthly mortgage payment first. And then turn around and do a HELOC after for the remaining 10% of the property. Because he is stating this will help to get me a better rate and remove PMI first, and get me some cash back in my pocket. I was just wondering is this a wise decision? Because I planned on getting equity (cash) From the property to use to purchase another property some time next year, but just indecisive as to which is the better option to do first. I wanted to do just a simple HELOC, but he was saying it would not make sense to do a HELOC at 90% LTV, and then try to do another refinance to remove the PMI and get a better monthly rate. Any input on this topic would definitely help! Thank You All!

Tabesteph Moliki · Answer

@Jaysen Medhurst yeah sounds reasonable, I was just more so thinking as to weighing the pros and cons behind it all which is what has me so hesitant at this point. But I think I will go ahead and do both the cash our first and then HELOC second in that order! I pretty much just plan on holding whatever funds I receive from this and use it next year to purchase another property anyway!

Jaysen Medhurst · Answer

@Tabesteph Moliki, I'd go as low a LTV as you can once you factor in appraisal, balance due, and closing costs. Maybe that's 70% or 75% LTV, I don't know. That has a few advantages:

• Gives you the lowest possible mortgage.
• Increases the amount available for a HELOC (you can still do a total 90% LTV)
• Be decreasing/eliminating the cash out, you're less tempted to fritter away the extra money.

A bit off topic, but since you're doing a HELOC, look into "velocity banking." It's basically using your HELOC + extra payments to quickly pay down your mortgage.

Tabesteph Moliki · Answer

@Jaysen Medhurst so you would advice listening to the lenders advice and do a cash out at 80%LtV, which would remove PMI and lower monthly mortgage payments, and then turn around and do a HELOC for the remainder 10%?

Jaysen Medhurst · Answer

@Tabesteph Moliki, I like refi at 80% LTV or lower. Then use a HELOC to tap into additional equity. Sure, the HELOC has a slightly higher interest rate, but it's much less expensive in fees and you don't accrue any interest until you actually use the money. Ideally, you're using the HELOC for short-term financing.

Should I do a cash Out first and then a HELOC?

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