Cash Out Refi vs. HELOC

[Reece O.]

Hello, Is a HELOC easier or harder to get than a cash out refi? Are they the same? My credit is good. I am only worried about denial from my income. I have over 40% equity in my property. Assuming that I cannot get either of these, would it be possible for me to find a lender somewhere that would take my property as collateral? Thanks.

[Daria B.]

I've never done a cash out refi but I have acquired a HELOC. The HELOC would allow you to use it and reuse it until you can't. Meaning the cash out refi I believe would be a one time thing on the property in question, where as, the HELOC is a loan (so to speak) in place that you draw on and repay and then draw on again. Or, continue to draw on and pay according to your agreement with the bank for which you got HELOC. Whether it's a HELOC or a cash out refi the property is still considered the collateral for the bank.

[Joe Splitrock]

@Reece O. speaking in general terms, a HELOC is different than a cash out refi. The HELOC is a line of credit and generally you pay interest only and it has a limited term, like 5 years. A cash out refi will put cash in your pocket and will extend the payment term out to as much as 30 years. The choice probably depends more on what you plan to do with the money. Either will probably require similar financial credentials, but I don't know that for sure. You may be able to get around 20% out since that would put you at 20% equity in the property. That is usually the minimum without something like mortgage insurance. I am speaking in very general terms. You are best to talk to a lender that can look at your specific situation.

[Reece O.]

Hello,

Thank you both for the information.

Sorry if I was vague. I do understand both use my property as collateral. What I meant is could I find a lender to take my property as collateral if I cannot get approved for the refi or HELOC? Does anyone know if they have the same income requirements?

Thanks.

[Reece O.]

Hello again,

Another question: is their a requirement on how long I must have the property to be eligible for a HELOC?

[Account Closed]

I found the HELOC really easy to get. Even got it for free on a rental property @ 80% LTV, 4.75% 12 years interest only without closing cost or appraisal! Now using it as a down payment on another property closing this week. I would eventually channel more cash flow to the principal to pay it off quicker.

I would shop around local credit unions. The one I got didn't have a requirement for how long I must have the property. I'm also getting another HELOC on another property soon.

Cash out refi doesn't seem appealing to me in that it's 5-6k closing cost for less LTV. It's also not reusable. I still have the option to do that in the future if I don't have the need for HELOC anymore.

@Reece O.

[Edward B.]

@Reece O., HELOCs typically are much easier to get because they are solely bank products and do not need to meet Fannie or Freddie guidelines. In that respect they are more like car loans or credit cards because the banks will have different products to compete for your business. It pays to shop around because different banks and credit unions will have different rates and terms based on their current needs and risk profiles. Refis will typically require you to meet the Fannie and Freddie guidelines so the lender knows they can sell the loan down the road. Much more expensive and much more difficult to qualify, especially for a cash out refi.

If you are going to use the money as a down payment then the refi may make sense to lock in the historically low rates. You would have to run the numbers, though. A HELOC is better for quick in and out strategies such as fix and flips or BRRRR where you take advantage of the ability to reuse the money over and over again. If you use it for a down payment you will see your payment start to go up when rates rise and you will quickly be tapped out. Some HELOCs do allow you to convert to a fixed rate or home equity loan. That will be a higher rate and higher payment though, since it will turn your interest only payment into a principle and interest payment. You really need to know what you want to do with the money and then run the numbers.

[Russell Brazil]

HELOCs are considerably easier to get...however the interest rate with them will change as they change in the market. However the nice thing is you are not forced to utilize your HELOC. If you do a cash out refinance, you have the luxury of the fixed rate, but then you need to do something with the cash because you are locked into those payments. So flexibility with worse terms verse better terms and no fleixibility

[Shefali R.]

@Account Closed - I am looking for banks who will do HELOCs on investment property and so far have a v small list (Wells Fargo, TD, Penfed) for my area. Could you share name of the bank who did your HELOC? thx

[Account Closed]

@Shefali R. - PenFed

[Alexander Felice]

both have been really easy for me to do.

ideally, I put the biggest heloc on my primary and then do cash out refi's on purchases.

[Anthony Cosgrove]

Currently kicking around the same debate in my head. Thanks for all the replies!