If I use a HELOC to buy a property outright and also cover the rehab costs, can I then refinance and pay the HELOC back without incurring the higher fees associated with a cash-out refi?
Obviously best to speak with your lender. This depends on which property you are planning on refinancing. Banks like paying other banks, but don't like to give out money to the mortgagor. So, if you take a HELOC out and then do a straight rate-term refinance the new lender will pay off the HELOC and the first mortgage without having to do a cash out refinance. However, this is only if you refinance the property you have taken the HELOC on. For example: You take a HELOC on property 1 to buy property 2. If you refinance property 2 to pay the HELOC then you would have to do a cash-out refi to take equity from this property to pay off the HELOC. To avoid this, you instead would have to rate-term refinance property 1 to pay the HELOC off, or take an additional HELOC from property 2 to pay off first HELOC, then straight rate-term refinance property 2 to pay off the second HELOC. These options typically have varying seasoning times as well. Hopefully that makes sense. Message me if you have questions or talk with your lender.
Thanks, Brandon, this makes a ton of sense. I was wondering if I could use my HELOC instead of hard money (where I'm essentially the hard money lender) to avoid the cost of a cash-out refi. I couldn't find any information on how the HELOC would play out with this type of scenario. I can't thank you enough for explaining this so clearly. Thank you for the offer to message you with questions, I will likely take you up on that once the dust settles on my current rehab project. Which, is one for the record books (the last drug house in a neighborhood that is trying to shake off a 30-year reputation).
@Chris Stephens Yes, in this case the property would basically be owned free and clear so when you go to do a cash out refinance the proceeds would be wired to you directly and you could use them to pay your HELOC back off.