HELOC for new project?

Question

I don't know much about HELOC and have never taken out this loan. But my plan is I'm going to take out HELOC of my current home to purchase a fixer property, then refinance the property after 90 days to pay back HELOC and turn the property into a rental. Is it a doable strategy? Is it a good plan? What do you think?

Dan Barli · Answer

Have you spoken to a lender about the HELOC for your current home yet? The first thing you should find out is if you can get a HELOC and for how much. Then you can determine if you are able to acquire a fixer-upper. How will you finance your purchase? Would it be straight cash using the HELOC? If not, are you using a conventional mortgage? I would suggest you make sure you have the end refinance lined up before you pull the trigger and purchase the property. If all the things line up, then this is a good strategy to use.

Corby Goade · Answer

There are many more details to cover, but yes, this is possible. If you want to refinance in less than six months, you need to use the delayed financing program, and you should be familiar with the guidelines before you start, and even more importantly, you need to find a lender that is familiar with them, which I have found to be the real challenge.

If you wait six months, you can use conventional financing and pull a little bit more cash back.

Katie Huynh · Answer

@Dan Barli Thank you for the tips.

I will talk to the lender on Monday to find out how much I can get from HELOC. I assume it's enough to cover the purchased price of $250k  for a 3br, 2bd 1230sqft home; expect to spend about $10k for the fix and I have some funds saving for that. Option 2 is to use a conventional mortgage. I am also talking to the lender about this too.

I am not sure yet which option I'm going to use. Just see a potential growth on the property, so I want to take a chance.

I will update when I get a word from the lenders.