HELOV vs. Home Equity Loan
When considering the acquisition of a second property by leveraging the equity in an existing property, which option would be more advantageous, obtaining a Home Equity Line of Credit (HELOC) or a traditional home equity loan?
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#1 Creative Real Estate Financing Contributor
- Lender
- Fort Worth, TX
@Jaron Chaplin is the current property your primary home or an investment property?
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It is my primary residence. Should it be beneficial; I am open to relocating to the new property (as a primary residence) in exchange for a lower downpayment.
@Jaron Chaplin depends on the amount capital you need vs LTV. With a Heloc you only pay on what you've drawn. If you plan on using most of it, maybe the loan is worth it.
I always do a HELOC over home equity loan. The benefit is that you can continue to turn the money over again and again and again. I would buy a property in cash using HELOC, renovate it and then cash out refinance (getting all the money back) and pay down the HELOC to zero and then rinse and repeat. In this way I didn't need hard money or anything else.
I currently have just a HELOC on my primary residence and I used that to purchase 3 flips that my partner and I have finished up. He paid me hard money for the use of my HELOC.
Finally if you have a good W2 or other income source coming in, you pay it down which gives you the dry powder to be nimble to act quickly to buy again. Happy to discuss this further. If desired, DM me.
@Jaron Chaplin Either one will work fine depending on what you plan to do with it. If you are planning fix and flips, probably better off with HELOC. If you are going to buy and hold for a very long time, it may be worth the HEL depending on rates etc.
HELOC is the better, less stressful and cheaper option 95% of the time.
The only situation in which a equity loan is better is when you already have a specific use for those funds and you know the returns are acceptable.
You don't want to pay interest on that money with no plan in mind and no experience as an investor. That's a very expensive and stressful way to lose sleep.
