HELOC Vs. Cash out refinance

3 Replies

Hello everyone, 

I haven't been actively looking for another property to buy because I do not have anymore money for downpayment, but I'm trying to find other creative ways to do so and not let that be a road block. I have a single family which I've rented to a family member and a duplex, both are in a crappy market that is not growing much, so I'm looking at venturing into another city. Asking for suggestions on what cities are best...but here's my real question, is it better/safer to use a HELOC or do a cash out refinance for downplayment for another property?

@Shantelle Evans I love both tools, although if I had to choose it would probably be the HELOC. The HELOC doesn't cost you anything to hold if you don't use it for a while, and you can often times get low interest periods on the front end to help you pay them down quickly. I used a HELOC for my first investment property here in the Chicago burbs, and it worked out beautifully.

HELOCS are sometimes harder to obtain, but they are offered up to 90% now in FL, maybe 95% in some states for highly qualified borrowers.

However, you can minimize having to sink so much money into "Dead Equity"  by looking at 85% Investment Property mortgages AND where so many so called "Experienced investors" fumble the ball when using a purchase loan is to take advantage of negotiating  'Seller Concessions/ Credit" in the sales price to pay closing costs. 

I have borrowers come to me every day who overlook doing this No Brainer, simple paper credit.

Example:   Property Listed at $100,000

Negotiate at sales price of $90,000?

OR

Negotiate at sales price of $95,000 with a seller credit to pay buyer's closing costs of $5,000?

Same approx. net to seller (minus about $15 per $1000 for increased difference on doc stamps of deed and Owner's Title Policy)

WHAT IF SELLER HAS TO PAY CAP GAINS TAX ON THE PROPERTY? IF this comes up (rarely are the sellers savvy enough to think about it), simply adjust the sales price.

Steve McRory, Lender in FL (#360492)
888-662-4404

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