Use HELOC to buy, then refinance into mortgage?

Question

I'm new to real estate investing and have secured a HELOC on my existing home. I'd like to use this to make an "all-cash" offer on a SFR, and then convert that to a conventional mortgage to pay off the HELOC. Dumb question, but is this called a cash-out refi? Or is there a different term for this?

Nicholas L. · Answer

@Jordan Kaylor

yes, when you refinance that would be a cash-out refinance. but you would only want to do this as part of a BRRRR, otherwise you're paying closing costs twice for no reason, as well as the interest on the HELOC prior to refinancing.

and, conventional loans can have seasoning requirements of 6-12 months... DSCR typically 3-6.

Warren Powers · Answer

Make sure you and your mortgage provider understand "delayed financing". I got stuck with a higher refinancing rate and cost the first time I refinanced a cash HELOC purchase.

Ben Trageser · Answer

You may be able to help with this @Denver McClure

Brittany Minocchi · Answer

Hey Jordan!

Yes, you'd be doing either delayed financing or a cash out refinance depending on the timing. The only instance where it might be more beneficial to do it this way vs. getting financing right off the bat is if you need to be SUPER competitive with your offers in your market. Otherwise like Nicholas said, you're paying some unnecessary costs and will likely need to keep more equity in the property with a refinance than what you would've buying it with financing right off the bat.

Josh Bowser · Answer

Hey Jordan - welcome to BP in the REI world!

Strategy you are talking about it definitely something can be done. However, this is not a cash out refi.

Cash out refi is when you refinance an existing loan, with another one (i.e replace the loan) where there is enough money left over at the end of the process where you can put some proceeds in your pocket.

When it comes to your strategy - just make sure you're being conservative with your numbers on the purchase / rehab if you don't plan on using other proceeds to payoff the HELOC.

If you have any questions on this - please feel free to reach out to me via pm I'd be happy to chat. My contact info is in my bio as well.

Good luck!

Jay Hurst · Answer

@Jordan Kaylor @Jeanette Land Seasoning requirement is a industry term for waiting period. For example, if you buy a home for 100k, and then improve the property and now it is worth 200k. So, you say will I want to take some cash out using the 200k value but most programs will require you to wait some period of time from 3 months up to 12 months for conventional before you can use that 200k value to pull cash out.

This seasoning does NOT apply to delayed financing as I mentioned in my post above.

Joseph Bui · Answer

I've worked with many investors that take this approach. My biggest rule it to pay off the heloc as soon as possible because the rate is variable and its much safer to be in a locked in mortgage.

Michael Dumler · Answer

@Jordan Kaylor, financing aside, how are you going about sourcing potential deals? Which areas of metro Atlanta are you targeting? You noted the possibility of acquiring a single-family turnkey rental. However, have you explored other investment strategies?

Jeanette Land · Answer

@Jordan Kaylor I was wondering the same thing.

Use HELOC to buy, then refinance into mortgage?

Use HELOC to buy, then refinance into mortgage?

Most Popular Reply

16 Replies